OMB APPROVALSECURITIES AND EXCHANGE COMMISSIONOMB Number:    3235-0420Washington, D.C. 20549Expires         March 31,2007Form 10-KSBEstimated average burdenHours per response        1646  (Mark One) SANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended March 31, 2007  £TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ______________ to________________  Commission file number: 033-37099-S  T-BAY HOLDINGS, INC. (Name of small business issuer in its charter)  Nevada91-1465664(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)  18th Floor YongSheng Building, ZhongShan Xi Road, Xuhui District, Shanghai, China (Address of principal executive offices)     (Zip Code)  Issuers telephone number: 86-021 51539900   Securities registered under Section 12(b) of the Exchange Act: None.  Securities registered under Section 12(g) of the Exchange Act:  Common Stock (Title of class)  Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. £  Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.       SEC 2337 (12-05) Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.    Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S     No £  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  S  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  £     No S  State issuers revenues for its most recent fiscal year. US$35,326,000  State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)  Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.  The aggregate market value of the issuers voting stock held as of June 27, 2007 by non-affiliates of the issuers was US$46,152,696 based on the closing price of the registrants common stock.  (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)  Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes £     No £  (APPLICABLE ONLY TO CORPORATE REGISTRANTS)  State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.   30,088,174  DOCUMENTS INCORPORATED BY REFERENCE  If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (Securities Act). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).  Transitional Small Business Disclosure Format (Check one): Yes £ ; No S  2    PART I  Item 1. Description of Business.  GENERAL  The Company was incorporated under the laws of the State of Utah on August 8, 1984 with the name of "Sharus Corporation" with authorized common stock of 50,000,000 shares with par value of $0.001 per share. On June 13, 1989 the domicile of the Company was changed to the state of Nevada in connection with a name change to "Golden Quest, Inc." On January 7, 2002, the name was changed to "T-Bay Holdings, Inc." as part of a reverse stock split of 400 shares of outstanding stock for one share. On January 17, 2005 the Company carried out a reverse stock split of 20 shares of outstanding stock for one share.   After the reverse split, the Company has authorized common stock of 100,000,000 shares common stock and 10,000,000 shares of preferred stock both with par value of $0.001.  On August 1, 2005, the Company entered into an Agreement and Plan of Reorganization (the Agreement) between Wise Target International Limited, (Wise Target), Amber Link International Limited (Amber Link), Ms. Meilian Li and Mr. Xiaofeng Li.  Pursuant to the terms of the Agreement, following due diligence, the Company acquired all of the outstanding stock of Wise Target and Amber Link, making them wholly owned subsidiaries of the Company.  Wise Target and Amber Link together own and control 95% of Shanghai Sunplus Communication Technology Co., Ltd., (Sunplus), a Sino-foreign joint venture. The Agreement required the Company to issue 18,550,000 shares of restricted common stock in exchange for all of the issued and outstanding shares of Wise Target and Amber Link.  This transaction was subsequently completed on August 16, 2005.  We conduct our business through our 95% owned subsidiary, Shanghai Sunplus Communication Technology Co., Ltd., a Sino-foreign joint venture established in China in 2002, which provides a wide span of mobile handset design and other services to leading mobile handset brand owners in China.  Sunplus also provides total solution services to its customers, starting from new product concept identification, handset exterior design, hardware and software design, material procurement, production, and after-sale maintenance services. Historically, our customers included multinational brand names such as Motorola, NEC, Siemens, China Telecom, Panasonic and Alcatel. During the current fiscal year, we also conduct our business through Amber Link. Our major customers in China in fiscal year ended March 31, 2007 were Shenzhen Feihu Communication Co., Ltd. (Feihu Commnunication), Shenzhen Henkai Co. Ltd.(Shenzhen Henkai), Huizhou Qiao Xing Famous Technology Co., Ltd. (Qiao Xing Famous Technology), Shenzhen LaiDi Electronics Co., Ltd. (Shenzhen LaiDi) and Shenzhen Siecom Communication Technology Co., Ltd. (Shenzhen Siecom).  We focus on the vast and booming wireless telecommunication market in China. By working closely with the worldwide top technology partners, we provide tailored mobile handset design solution services according to our customers special demand. We believe we have strong design capabilities to design mobile handsets to support a broad range of wireless communications standards, baseband platforms and components. We also provide production support to facilitate our customers manufacturing and supply chain management processes. In addition, our special project teams work closely with our customers to monitor and coordinate the progress of each new design project. To further strengthen our presence in the market, we have also begun to work with our customers in providing customized handset solutions to mobile service operators. We believe the design solutions and services provided by us can help our customers in enhancing competitive strength and gaining market share.  Services and Products  We seek to maintain and strengthen our position as a provider of high quality mobile handset design services.  We tailor-make our services and products based on the requirements of our customers.  Our services mainly include:  -   Design Service  * Mobile handset design.  We have special project teams to work closely with our customers to monitor and coordinate the progress of each new design project.  * Industrial and mechanical design.  We design the exterior outlook and mechanical structure of a mobile handset.  We adopt the user-orientation design concept and focus our product design on the personality of target end-users.  3     * Hardware design.  In addition to the design of the core printed circuit board layout, we have also set up special engineering teams on the design of baseband and radio frequency parts of mobile handsets based on chip platforms.  * Software design.  We design the software system for the mobile handset and its functional modules.  We are capable of developing our own software in man-machine-interface and the driver software for LCD display, camera, harmonic ring tones and MP3 functions.  *Other Design Service    Our design is also capable of designing other electronic devices based on wireless technology. Currently, we extended our design in GPS device, Auto Communication System, Radio Frequency design.  - Production Services. Based on the request of our customers, we also manufacture the components and/or the entire mobile handsets.  We subcontract the production work to third party manufacturers mostly in the Shanghai area.  We have a quality assurance team to monitor the production process to ensure the products can meet our quality requirements.  * Components:  These mainly include printed circuit boards (PCB) and printed circuit board assembly (PCBA).  They are the backbones of mobile handsets.  * Whole mobile handsets: Based on special requests of the customers which may not have the resources or facilities to manufacture the whole mobile handsets .  - After-sale Services  * For the mobile handsets we manufacture for our customers, we will also provide maintenance services during the product warranty period.  Business Model  We are one of the largest wireless telecommunication design houses in China. We generate our revenue mainly by charging design services fee and selling key components and whole handsets.  *Revenue from Design Services  We charge design fees directly or indirectly for design solutions or services provided by us. The design fee consists of NRE (non-recurring engineering) fees and royalty fees.  NRE fees are one-off fees for a certain design project. Typically, we ask for a pre-paid NRE fee before we formally launching the project. We will start the development of a certain solution only if we have received the pre-paid NRE fee. . To minimize the operation risk, the NRE fee should be no less than the projected R&D fee for a certain design solution. We usually ask for a minimum volume term in our contracts to encourage larger volume order in a certain period of time.  We also charge royalty fees by the volume of the solutions we sell to our customers. When the whole handset is sold on the market, we charge royalty fees monthly or quarterly on every handset manufactured by our customers using our designs. Royalties accounted for 52% of total revenue from design service for the fiscal year ended March 31, 2007.  *Revenue from Sales of handsets and components  We also provide production support to facilitate our customers manufacture of mobile handsets and components. By closely working with our OEMs, we manufacture and sell PCBs, PCBAs and handsets to our customers. We are fully responsible for material purchases, cost control and quality control.    4    Competitive Strengths  Strategic Relationships with Business Partners  As the mobile handset industry is characterized by rapid technological changes, it is essential for us to keep abreast of and have access to the latest technologies by working closely with the worlds leading technology and platform providers. For fiscal year ended March 31, 2007, we added VIA Technologies Inc.(VIA), MediaTek Inc., Ltd.(MTK), Anyka Inc.(Anyka), Infineon Inc.(Infineon) as our strategic partners which enables us to expand our product coverage. And we believe we are one of the first independent mobile handset design houses in China to work with Skyworks, which has established a dedicated support team in Shanghai to support us in our design process.  We have also established good relationship with subcontractors which provide production services for mobile phone components and handsets.  Quick Market Response  We pursue a market-oriented product development strategy, grasping end-users preferences and tastes. Our experience and expertise enables us to complete a design solution in only 2 to 3 months, to ensure our designs are one step ahead of our competitors and leading market trends.  Strong R&D capability  We have a professional and competent team to handle the wide spectrum of mobile phone design jobs, including industrial design, structural design, electronics design, software design and machine-man interface design. Some of our engineers used to be employed by mobile communication leaders such as Motorola, Siemens or BenQ. Our professional industrial design team was the iF Asia Design Award Winner in 2005.  We are one of few design houses in China that are able to develop new mobile phones based on chip-level modules, which can enhance the flexibility of the product design in terms of handset size and functionalities.  Customized Products and Market Knowledge  We design many of our products based on our customers specifications. We work closely with mobile device manufacturers and brand name owners to understand their needs and product roadmaps. We also interface with our customers regularly to understand the mobile handset market, consumer preferences and trends in the industry. This allows us to predict future trends and to assist our customers in the development of new products and functions and the setting of a price range.  Our Customers  For the fiscal year ended March 31, 2007, our five largest customers in terms of revenue were:  Revenue (US$000)% of total revenue1. Feihu Communication7,54221%2. Shenzhen Henkai3,38510%3. Qiao Xing Famous Technology3,38210%4. Shenzhen LaiDi2,7668%5. Shenzhen Siecom2,6538%  Company History of Sunplus  October 2002, Shanghai Sunplus Communication Technology Co., Ltd. was established in Shanghai, with only 40 employees.  5     December 2002, Sunplus established its strategic cooperation with Skyworks, followed by the first mobile phone modules based on Skyworks chips platform. The first module developed by Sunplus was used by Panda Electronics Inc. (Panda) for making 150,000 mobile handsets and also was used by one of our major customers, CECT.  May, 2003, Sunplus launched its first phone model design.  April 2003, Sunplus started a collaboration with French Wavecom in module R&D.  The module was completed six months later, which was ordered by Huizhou Jialili Telecommunication Co., Ltd. (Huizhou Jialili), in its phone model T2, which became one of its most popular products.  December 2003, Sunplus completed the development of an electronics platform, which was sold to Huaguan Electronics Inc. (Huaguan) for RMB 20 million (US$2,480,000), which was followed by a 150,000 sets order from Panda and 200,000 units order from CECT.  As of January 2004, more than 500,000 mobile phone handsets designed by Sunplus were sold in the China market. Major models included A606 Yinghu for Huaguan, Q747 Zhizhun for Philips, T520 Beetles for Hong Kong Zhongjian Telecom. Later on, Sunplus continuously received large orders from Panda, CECT, Huizhou Jialili, most of which exceed 200,000 units.  January 2004, Sunplus established a partnership with Shenzhen Ankai Microelectronics Technology Co., Ltd. to establish a multimedia chips platform combining Ankais applications of multimedia chips with Skyworkss radio frequency functions on basis of chips.  Our product, T520 Beetles, was awarded by Sina.com as the Most Popular Mobile Phone for Female.  May 2005, our design SP-8 for the product CECT S569 was awarded top 100 iF Asia design. SP-8 was also awarded the Fashion Color Nominate Prize.  On August 16, 2005, we completed a reverse merger with Amber Link and Wise Target and subsequently we own a total of 95% shareholding in Sunplus.  May 2006, Sunplus received the ISO9001:2000 certification of quality management system.   August , 2006, Sunplus and VIA Technologies Inc., Ltd. (TSEC: 2388), a leading chipset solution provider, established a partnership on Global Systems for Mobile Communications (GSM) handsets development.  December 2006, Sunplus and MediaTek Inc., Ltd. (MTK) (TSEC: 2454), a leading chipset solution provider based in Taiwan, entered into a partnership agreement to jointly develop multi-media Global Systems for Mobile Communications (GSM) handsets for the mobile telecommunications market in China.   January 2007, Sunplus re-launched a partnership with Anyka Inc., a Silicon Valley based company, which enabled us to access the new technology of Infineon, a leading chipset solutions provider headquartered in Germany.  January 2007, Sunplus established Zhangzhou JiaXun Communication Facility Co.,Ltd.(JiaXun)  February 2007, Sunplus acquired RF design team from Simiens&BenQ, and extended our design service in RF design industry.  March, 2007, JiaXun, a 100% subsidiary of Sunplus, and Sunplus respectively acquired 20% and 80% interests in Fujian QiaoXing Industry Co.,Ltd.(Fujian QiaoXing), which will focus on the manufacture of telephone and mobile components.  May 2007, Sunplus received 6 copyright for its designed software. All of them are games and applications for mobile phone.  6     May 2007, Sunplus established Tech-Support Center in Shenzhen.  May 2007, Sunplus was awarded Software Company by Ministry of Information Industry of China.  Current Business Development  During fiscal year ended March 31, 2007, we launched 21 mobile handset total solutions in 9 series based on 3 different chipset platforms. As of March 31, 2007, we were able to provide 8 solutions based on 3 chipset platforms covering the high-end, mid-end and low-end markets, compared to 4 solutions based on only one chipset platform aiming at only the mid-end market for the first half of fiscal year 2007. We successfully established strategic partnerships with VIA Technologies Inc.(VIA), MediaTek Inc., Ltd.(MTK), Anyka Inc.(Anyka), Infineon Inc.(Infineon), while maintaining  old relationships with Skyworks and other technology partners, which greatly expanded and diversified our product portfolio to cover more market segments. We can tailor-make solutions featuring functions such as handwriting recognition, digital camera, Dual speaker, GPRS, FM radio, dictionary, PC Cam, blue tooth, E-mail, MP3, MPEG4 3GP, WAP, USB&T-Flash, MMS, CMOS, TV-out, fingerprint authentication, firewall and sound recorder.  We aim to help our customers enhance their competitive capacity by accelerating the product-to-market process. We believe we were among the first design houses in China to provide multimedia, handwriting, TV-output solutions to our customers.  We hope this will enable our customers to launch the products with these functionalities earlier than other brands.  For the fiscal year ended March. 31, 2007, there were approximately 2,200,000 units of Sunplus-designed mobile handsets sold in the market, compared to about 1,200,000 units in fiscal year ended March 31, 2006.  We have approximately 50 customers as of March 31, 2007, compared with approximately 30 in fiscal year 2006. New customers were identified by our marketing team, introduced by our partners, suppliers, existing customers or acquired from national and international exhibitions. Expansion of our customer base was one of the factors for our business growth.   We have made investment in another company in January, 2007. Sunplus, the 95% subsidiary of T-Bay, has established JiaXun, a 100% owned subsidiary in Zhangzhou in Fujian province. In March, 2007, JiaXun and Sunplus respectively acquired 20% and 80% interest in Fujian QiaoXing.This acquisition allowed us to manufacture in our own facilities. Fujian QiaoXing was established on February 13, 2004, with registered capital of RMB25,000,000 (US$2,590,000).  We acquired a RF design team from Siemens & BenQ in February 2007, to expand our design service in RF design industry. T-Bay Holdings Inc. or its subsidiaries may establish a Joint-Venture on the project. The planned JV aims to provide design and manufacture service  on various RF products, especially for Mobile handsets(GSM, CDMA, PHS, SCDMA), WLAN, Bluetooth, Wireless phone, 2.4GHz, GPS, Mobile TV. The designs and products may not limit to usage for T-Bay holdings Inc. , and its subsidiaries, but also open to other brand name owners and manufactures. Currently we have less than 10 employees (including the design team acquired) working on the project, most of whom are experienced engineers, and additional employee might be hired for the future growth of business.  We have set up a tech-support center in Shenzhen as one step to support our increasing customers in Shenzhen. The office takes up approximately 93 square meters at NongYuan Street, FuTian District.  Products Geographic Coverage  In terms of revenue, over 90% of our mobile handsets designed by us were sold to China and Hong Kong markets, The company did not sell products to consumers directly, but sell through the network of our customers. According to sales information provided by our customers, products designed or manufactured by us were sold in major cities, secondary cities and small towns throughout China, covering all provinces of China.  Starting from 2006, we began to sell whole mobile handsets products through our sales agent. Our products mainly sold to Southeast Asia, Eastern Europe and Latin America.  7    Seasonal Factor  We usually have higher revenue in the third or fourth fiscal quarter (period starting October 1 to March 31) and lower revenue in the first or second quarter (period starting April 1 to September 30). The seasonal factor affecting our revenue was mainly because our royalty fees are charged monthly or quarterly based on the amount of products sold during the period. Mobile handsets sell the most during long holidays including National Day, Christmas, New Year and Chinese New Year.  The seasonal factor does not have material effect on our NRE fees revenue and overseas sales.  Our Strategies  Continue to increase our product offering  In order to maintain and increase our competitiveness, we intend to continue to expand our product offering by introducing about 30-35 new phone models per year. This could consist of the following categories:  a) High-end GSM/GPRS telecommunication terminals (mobile phones) with embedded functions including MMS, Java, Camera, FM radio, Color LCD, email, MP3, finger-print identification, voice identification, as well as USB, SD, MMC, and blue tooth interfaces.  b) Business-use multifunction mobile phones  focused on email, web browsing and wireless e-commerce functions.  c) Low-end mobile phones for mid and low-income consumers with competitive price  d) Third Generation Mobile Technology (3G) mobile phones to cater for the various value-added services such as electronic wallet, stock trade, video conferencing, real-time news broadcasting, etc,  e) Extended wireless products based on 2G, 2.5G and 2.75G networks, including GPS, Blue tooth, Auto wireless communication.  Expansion into Overseas Markets  We anticipate there is a trend that international mobile handset vendors will start to outsource products and services in China. We plan to increase our marketing efforts to target at potential foreign handset vendors and foreign trading companies. We also expect most demand for international sales of our products and services will come from Southeast Asia, Eastern Europe and South America.  Continue to strengthen our R&D capabilities  Our R&D capability is one of the main engines for our future growth. We will continue to strengthen our R&D capabilities by investing in advanced technology, where necessary, to facilitate the development of new products and improve the efficiency of our design process.  We plan to increase the strength of our current R&D team by recruiting additional professionals with relevant skills and expertise to augment the knowledge of our existing team as well as to train and update our staff with the latest development and trends in our industry.  We also plan to purchase advanced group of equipment and software to enhance our R&D capabilities.  8    Broaden Strategic Relationships in the Mobile Handset Value Chain  We believe our current strategic relationships with several leading wireless technology and platform providers such as Skyworks, MTK, VIA, Infineon have provided us with access to advanced technologies and we hope this will help us build our reputation in the industry. We anticipate these relationships will also allow us to secure competitive pricing and shorter supply lead time for component procurement for our customers. We also intend to establish and strengthen the strategic relationships with our top customers to further secure our position as their preferred provider of mobile handset design services and hope to become an integral part of their overall mobile handset strategic and product roadmap.  Quality Assurance  We believe that a high standard quality management system is crucial for maintaining our reputation. Our quality assurance team monitors hardware, software and mechanical design teams performance to ensure strict adherence to the quality standards required by our customers. The team conducts product reliability tests, including accelerated life tests, climatic stress tests and mechanical endurance tests. The team is also responsible for components qualification, prototype quality assurance, and submission of prototypes for FTA and CTA certifications. In addition, the team collects and organizes all relevant written documents produced and used throughout the design process.  FTA certifies that a mobile handset submitted for testing has passed tests for its reliability and conformance with global standards.  CTA certifies that the use of a telecommunication terminal equipment in the national telecommunications network has been approved and complies with the requirements for network access and the national standards established by the Ministry of Information Industry.  We believe that a high standard quality management system is crucial for maintaining our reputation. Our quality objective is to pursue a higher quality standard to meet the needs of our customers. We will continue to improve the quality of our products and services and place quality as our first priority.  Through our quality assurance team, we adopt stringent quality procedures at the design stage, incoming quality assurance of components and parts, assembly testing and final quality testing. Our selection criteria for suppliers include reputation, time to supply, availability of components and parts, etc.  Sales and marketing  Our sales force consists of approximately 15 salespeople and 15 technical support team. Most of them have many years of experience in the telecommunication industry. They are responsible for maintaining and establishing client relationships, trying to fulfill customers special needs, and introducing new technologies and applications in telecommunication field.  The following is our strategy with respect to the marketing of our products and services:  Branding  We believe that our success is largely dependent on our reputation in the industry. Therefore, it is important that we continue to promote awareness of our design services, products and our company through various promotional activities.  We frequently attend conferences, exhibitions and trade fairs sach as Cebit, HongKong Electronic Fair, Tianjin Mobile Handset Telecommunication Exhibition to promote our products and services. And we believe that our strong relationship with our strategic partners will helping us abtaining more business opportunities.   9    New Trends of Market Structure  We predict that operators and distributors may have larger market influence in the foreseeble future, which means more units would be sold through the operators and distributors network. We may seek for opportunities to do business with major operators and distributors.  Efficient Resources Utilization  We will continue to focus on our niche market, which are primarily local PRC mobile handset vendors offering mobile handsets at retail price of around RMB 600 to RMB 2,000 (US$80-US$260). We believe that our customers in this segment of the market are most likely to outsource mobile handset design to independent houses. In addition, we will intensify our efforts to increase overseas sales.  Build up a professional sales force  As of March 31, 2007, our marketing and sales team was comprised of 15 personnel. Through further recruitment and training, we aim to strengthen our marketing and sales team, improve efficiency and effectiveness of our marketing and sales management and procedures in areas of customer service, pricing, contractual terms and conditions, financial management, competitive strategies and market information.  Performance linked incentive scheme  In line with our belief that our sales personal are the pillars of a successful marketing strategy, we have put in place a performance linked incentive scheme where our sales and marketing staff are rewarded in accordance with their performance and achievements.  Establish our customer network  We believe that the establishment of a network of customers is the foundation for our existence and future development. We will through the establishment of a customer data base and continual regular communication, strive to understand and meet the needs of our customers and build long term relationships with them.  Intellectual Property  We believe protection of our intellectual property rights is extremely important for our continuous success. As of the March, 31 2007, we have registered 17 patents, of which 15 have been approved. All of them are patents for product appearance. Besides, we have registered 6 copyrights for software. All of them are games and applications for mobile phone.  Our competitors  There are about nearly a hundred mobile phone design houses in China, including market leaders as Techfaith Wireless, Shanghai Sunplus, Shanghai Longcheer, Shanghai Simcom. Other major design houses include CEC Mobile, Shenzhen Wanchong, Shanghai Yuhua, Zhejiang Holley, STEP Technologies, Shenzhen Jinwave Technology and Shenzhen Yulong Communication Technology. We believe Shanghai Longcheer and Shanghai Simcom are our most direct competitors.  Certain of our competitors are substantially larger, have significantly greater financial, marketing, research and development, technological and operating resources and broader product lines than we do.  We think that competition in our markets is based primarily on technology innovation, product performance, reputation, delivery times, customer support and price. We believe we are among the few design houses which are capable of both software design and hardware design as well as performing the whole spectrum of design activities and developing functions or applications at chipset-level modules.  10    Corporate Structure  Sunplus is jointly formed by Wise Target, Amber Link and Shanghai Fanna Industrial Product Design Co., Ltd. (Shanghai Fanna).  Wise Target and Amber link are investment holding companies incorporated in the British Virgin Islands whereas Shanghai Fanna is a privately-owned company established in China in 2001. On August 16, 2005, T-Bay Holdings completed a reverse merger with Wise Target and Amber Link, which jointly hold 95% interests of Sunplus. In January, 2007, Sunplus has established JiaXun, a 100% owned subsidiary in Zhangzhou in Fujian province. In March, 2007, JiaXun and Sunplus respectively acquired 20% and 80% interest in Fujian QiaoXing for the comstructioin of  technology park for long term development in mobile telecommunication industry . Fujian QiaoXing  was established on February 13, 2004, with registered capital of RMB20,000,000 (US$2,590,000). As of March, 31, 2007, the total assets of Fujian QiaoXing were US$4,284,000, consisting of land use rights of US$1,295,000, machinery and equipment of US$24,000 and construction in progress of US$740,000.  The current corporate structure of T-Bay Holdings is as follows:  T-Bay Holdings, Inc.
(OTCBB: TBYH)100%100%Wise Target
International Ltd.Amber Link
International Ltd.Shanghai Fanna Industrial Product
Design Co., Ltd.75%20%5%Shanghai Sunplus Communication
Technology Co., Ltd.100%Zhangzhou JiaXun Communication
Facility Co., Ltd.80%20%Fujian QiaoXing Industry Co., Ltd.  11    Employees  As of March 31, 2007, we have approximately 149 employees, detailed information as follows:  Our employees in terms of functions & departments:  FunctionSalesR&DManufacture
&Quality ControlPurchasing ,
Logistics&
FinancialOther MgtNumber of
Employees157528238Percentages10.1%50.3%18.8%15.4%5.4%  Our employees in terms of education:  Master & Ph.D.BachelorDiplomaOthersNumber of
Employees5774522Percentages3.3%51.7%30.2%14.8%  Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly qualified technical, marketing and management personnel, for whom competition is intense. Our employees are not covered by any collective bargaining agreement and we have never experienced a work stoppage. We believe we enjoy good relations with our employees and have low turnover rate.   Item 2. Description of Property.  As of March 31, 2007, we have R&D headquarter in Shanghai, Tech-Support Center in Shenzhen and factory in Fujian.  Our principal executive offices occupy a whole floor of space with total area of 1,737 sq.m. on the 18th floor YongSheng Building, Zhongshan Xi Road, Xuhui District, Shanghai, China. These leased premises house the design department, product testing facilities, maintenance and administrative departments. The lease is $19,000 per month.  Our Tech-Support Center in Shenzhen occupies approximately 93 square meters at NongYuan Street, FuTian District.  Through our subsidiary Fujian QiaoXing, we hold two rights to use land with an area of approximately 124,321.9 square meters and 130,112.9 square meters in JinFeng Technology Zone in Fujian Province, on which our new manufacturing facility is under construction. The two land use rights will expire in September 2054. We also hold two  factory bulidings with construction area of 7,420 square meters and 5,500 square meters.  Item 3. Legal Proceedings.  On October 12, Sunplus Technology Co., Ltd., (Taiwan, China) filed a suit against Shanghai Sunplus Communction Technology Co., Ltd., the Companys subsidiary.  The suit was filed in Shanghai No. 1 Intermedical Peoples Court, cashe number (2006) Civil case (intellectual property) No. 243.  The Plaintiff brought suit demanding that the Company cease using the Sunplus name.  The court granted the demand and the Company has now appealed the ruling in Shanghai Superior Peoples Court.  The Company intends to vigorously defend its use of the name Sunplus but believes that should the Plaintiffs ruling be upheld, that the Company will not suffer any risks.  Item 4. Submission of Matters to a Vote of Security Holders.  None.  12     PART II  Item 5. Market for Common Equity and Related Stockholder Matters.  Our common stock is listed on the Over the Counter Bulletin Board under the symbol TBYH.  At May 1, 2007 there were 323 shareholders of record holding 30,088,174 shares of common stock.  Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.  The following table shows the highs and lows of the closing bid and ask price on the Companys stock for the past quarter when it began trading on the Bulletin Board.  CLOSING BIDCLOSING ASKHighLowHighLow2005Jan. 3 thru Jan. 14.17.10.18.14Jan. 18 thru Mar. 312.05.554.00.95(After a 1 for 20 reverse split)Apr. 1 thru June 301.15.551.20.80July 1 thru Sept. 302.181.152.201.20Oct. 3 thru Dec. 301.901.201.911.302006Jan. 3 thru March 313.721.283.751.30April 3 thru June 303.212.203.232.25July 3 thru Sept. 292.801.512.831.53Oct. 2 thru Dec. 292.051.522.151.552007Jan. 3 thru March 303.101.853.131.95  The above quotations, as provided by Pink Sheets, LLC, represent prices between dealers and do not include retail markup, markdown or commission.  In addition, these quotations do not represent actual transactions.  We have not paid or declared any dividends since inception and do not intend to declare any such dividends in the foreseeable future.  Our ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that a corporations assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business.  Recent Sales of Unregistered Securities  None.  Item 6. Managements Discussion and Analysis or Plan of Operation.  RESULTS OF OPERATIONS  Overview  For the fiscal year ended March 31, 2007, our net revenue increased by US$9,709,000 from US$25,527,000 to US$35,236, 000, which represented a 38.0% growth. Our net profit increased by US$2,121,000, or 21.0%, from US$10,082,000 to US$12,203,000. We reported per share earnings of $ 0.41 in fiscal year ended March 31, 2007, an increase of $0.07, or 20.6%, compared to $ 0.34 in the fiscal year ended March 31, 2006.  13     Net Revenue  Fiscal Year Ended March 31(in thousands of US dollars)20072006GrowthAmount%Amount%Sales of components and handsets- Sales of handsets-100%-%4,95319.4%- Sales of components729.6%15,77944.8%1,9027.5%130.2%15,77944.8%6,85526.9%Revenue from design services4.2%19,45752.2%18,67273.1%NET REVENUE38.0%35,236100.0%25,527100.0%  Our net revenue was US$35,236,000 for the fiscal year ended March 31, 2007, an increase of US$9,709,000, or 38.0%, from US$25,527,000 in the previous fiscal year.  Revenue from sales of mobile handsets and components was US$15,779,000 compared to US$6,855,000 in the last fiscal year, representing a 130.2% increase. Revenue from design services also increased to US$19,457,000 from US$18,672,000 in the last fiscal year.  Our net revenue increase mainly resulted from the growth in sales of mobile handset components-PCB and PCBA boards.  Since March 2005, to better utilize our resources, we decided to focus on revenue from design services rather than manufacturing and selling whole mobile handsets for our clients. If necessary, we coordinate the production services provided by third parties with our clients needs. We believe this will enable us to shift our resources from manufacturing and logistics to R&D and design services, which are our core strengths. In fiscal year ended March 31, 2007, customers placed more orders of PCB and PCBA boards, and as a result the percentage of our revenue from sales of mobile phone components increased substantially as compared with the previous year.  For the fiscal year ended March 31, 2007, revenue from design services represented 52.2% of total revenue, while revenue from manufacturing was 44.8%, compared to 73.1% from design services and 26.9% from manufacturing in the fiscal year ended March 31, 2006.  Detailed information on sale of mobile handsets and components  Sale of products increased from US$6,855,000 in fiscal 2006 to US$15,779,000 in fiscal 2007. The increase was mainly attributable to the growth in the sales of PCB and PCBA boards, the key components in the manufacture of mobile handsets.  We manufacture PCB and PCBA boards according to our customers request. Besides the amount of revenue from selling PCB and PCBA boards to our customers, we charge royalty fees by the number of PCB and PCBA boards we provide. We manufactured more PCB and PCBA boards for our customers for the fiscal year ended March 31, 2007 when compared to fiscal year ended March 31, 2006. The increase in sales of PCB and PCBA Board led to the increase in sale of components.  Since March 2006, a small quantity of our products have been sold to overseas market by our sales agent.  Detailed information on revenue from design services  Revenue from design services, increased from US$18,672,000 to US$19,457,000, or 4.2%. The increase was mainly attributable to the increase in mobile handset total solutions launched during the fiscal year.   14    In the second and the third fiscal quarters, the design fee revenue was lower than the same period in 2006. It was mainly because less new solutions kicked off in the 6 months from June to December. We have withheld the development of three other new model series since July 2006 because of our anticipation that one of our chipset platform providers may shift its business focus from baseband digital signaling business to other products. We have been actively looking for new partners since June 2006. Therefore, despite the slight negative impact on our operations for the six months from July to December 2006 because less new solutions have been introduced to the market, we managed to increase our new design models shortly afterwards. We started cooperation with VIA Technologies Inc.(VIA) in August 2006, with Anyka Inc.(Anyka) and Infineon Inc.(Infineon) in December 2006 and with MediaTek Inc., Ltd.(MTK) in January 2007 to develop mobile solutions for the China market. New solutions based on VIA, MTK, and Anyka+Infineon have been strong drivers of design revenue since December 2006.  During the fiscal year ended March 31, 2007, the Company launched 21 mobile handset total solutions in 9 series based on 3 different chipset platforms. As of March 31, 2007, we were able to provide 8 solutions based on 3 chipset platforms covering the high-end, mid-end and low-end markets, compared to 4 solutions based on only one chipset platform aiming at only the mid-end market in the first half of fiscal year 2007. We successfully established strategic partnerships with VIA, MTK, Anyka, Infineon, while keeping old relationship with Skyworks and other technology partners, which greatly expanded and diversified our product portfolio to cover more market segments. We can tailor-madk solutions featuring functions such as handwriting recognition, digital camera, Dual speaker, GPRS, FM radio, dictionary, PC Cam, blue tooth, E-mail, MP3, MPEG4 3GP, WAP, USB&T-Flash, MMS, CMOS, TV-out, fingerprint authentication, firewall and sound recorder.  The increase in the percentage revenue from design services was mainly due to more orders for  PCB and PCBA boards placed by our customers during the year.  For the fiscal year ended March 31, 2007, about 2.2 million of the mobile handsets designed by us were sold in the market.  Cost of Revenue  For the fiscal year ended March 31, 2007, the cost of revenue increased to US$17,606,000 from $9,612,000 in the fiscal year ended March 31, 2006, representing a 83.2% increase.  Cost of revenue primarily consisted of the purchase cost of raw and processed materials and indirect cost of R&D and quality control.  Detailed information on Cost of Revenue  Fiscal year ended March 31(in thousands of US dollars)20072006GrowthAmount%Amount%Cost of revenueRaw materials81.6%14,94084.9%8,22685.6%Indirect R&D-47.7%920.5%1761.8%Model making252.9%1801.0%510.5%Manufacturing expenses541.7%1,6179.2%2522.7%Business tax-14.3%7774.4%9079.4%83.217,606100.0%9,612100.0%  The significant increase was mainly attributable to the increase in purchase of raw materials. As we designed and manufactured more PCB and PCBA boards for our customers, we purchased more raw materials in the current fiscal year than in the fiscal year ended March 31, 2006. Key materials for manufacture such as chipsets and PCB blank boards accounted for a large proportion of cost of raw materials. The cost of raw material was up by US$6,714,000, or 81.6%, from US$8,226,000 to US$14,940,000.  Gross profit  Our gross profit was US$17,630,000 for the fiscal year ended March 31, 2007 as compared to $15,915,000 for the fiscal year ended March 31, 2006, representing a 10.8% growth. The increase in gross profit was mainly attributable to the increase of revenue from the sales of mobile handset components. Our customers ordered more PCB and PCBA boards during fiscal year ended March 31, 2007.  15     Operating Expenses  Operating expenses consist of selling expenses and general and administrative (G&A) expenses. For the fiscal year ended March 31, 2007, operating expenses were US$3,301,000, as compared to US$3,568,000 for the fiscal year ended March 31, 2006, representing a 7.5 % decrease.  Detailed information of operating expenses for the year ended March 31, 2007 is as follows:  Fiscal year ended Mar. 31  (US$000)20072006Amount% of net revenueAmount% of net revenueOperating Expenses3,3019.4%3,56814.0%Selling Expenses2920.9%2340.9%G&A expenses3,0098.5%3,33413.1%  Operating expenses during the fiscal year ended March 31, 2007 were US$3,301,000, 9.4% of revenue, compared to US$3,568,000 for the fiscal year ended March 31, 2006.  Selling expenses increased from US$234,000 to US$292,000. The increase was mainly attributable to market expansion and marketing-related expenses, such as the expense for international shows or exhibitions.  G&A expenses were US$3,009,000, 8.5% of revenue, compared to US$3,334,000 in the last fiscal year. Management enhanced tighter cost control, which aimed at reducing unnecessary management expense and improving operating efficiency. The decrease in G&A expenses was mainly due to the increase in depreciation charges and traveling expenses partially offset by a decrease in salaries and allowance for doubtful receivables.  We established an allowance of US$62,000 for doubtful receivables. The allowance for doubtful receivables was US$336,000 as of  March 31, 2007 compared to US$274,000 as of  March 31, 2006.  Allowance for doubtful receivables is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience.  Interest Expense  For the fiscal year ended March 31, 2007, we had sufficient cash to meet obligations, and therefore, did not need to use our credit lines offered by local banks and other parties. As of March 31, 2007 we have no bank loans.We have incurred interest expenses of only $3,000 during the fiscal year ended March 31, 2007.  Minority Interests  Minority interests represent the portion of Sunplus income that we do not own.  In fiscal year 2007, minority interests were attributable to the minority interests owned by Shanghai Fanna, which was 5% of equity interest in Sunplus.  Income Tax  Sunplus is subject to PRC Income Tax.  Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax in Shanghai is 27% (24% national income tax plus 3% local income tax).  Pursuant to the relevant laws and regulations in the PRC, Sunplus is entitled to an exemption from PRC income tax for two years starting from its first profitable year.  As Sunplus statutory year-end is December 31, the exemption applied from January 1, 2003 to December 31, 2004.  Sunplus is also entitled to three years of 50% exemption after the expiration of the two years of full exemption.  The 50% exemption applies from January 1, 2005 to December 31, 2007. Therefore, Sunplus is now subject to a 13.5% income tax.   For the fiscal year ended March 31, 2007, Sunplus made an income tax provision of US$1,701,000 in total, compared to US$1,746,000 in the last fiscal year.  16     Fujian QiaoXing and JiaXun have not yet commenced operations and are not subject to any tax in the fiscal year ended March 31, 2007.  Net income  As a result of the above items, net income was US$12,203,000 for the fiscal year ended March 31, 2007, as compared to US$10,082,000 for fiscal year ended March 31, 2006, representing a 21.0% growth. The growth is mainly the result of significant increase of income from the sales of PCB and PCBA boards..  Earnings per share  We reported earning per share of $0.41, based on 30,088,174 outstanding weighted shares for the fiscal year ended March 31, 2007. Our outstanding common stock was 30,088,174 shares as of March 31, 2007. We do not have any preferred stock issued or outstanding .  Research and Development Costs  During the two years ended March 31, 2007 and 2006, research and development costs amounting to $92,000 and $176,000 respectively, were charged to operations and are included in cost of revenue.  Assets  Cash and cash equivalents March 31,20072006US$000US$000Cash and cash equivalents674,673  Cash and cash equivalents were US$67,000 as of March 31, 2007. The Company manufactured more PCBs and PCBAs boards for our customers, which required more working capital, and furthermore, the Company invested in Zhangzhou Jiaxun and Fujian QiaoXing during fiscal year ended March 31, 2007.  Accounts receivable, net  As of March 31, 2007, accounts receivable amounted to US$19,317,000, an increase of $4,717,000 compared to $14,600,000 as of March 31, 2006. The increase was mainly because of the fast growth of the Companys business. Customers in China usually request longer credit term from design houses until their products are launched and sold in the market. The credit term of accounts receivable usually is more than 3 months but not more than12 months.  The receivables are mostly from customers withwhom we have established long time good relationships. The credit terms we provide to our customers vary, depend on their size, industy reputation and historical credit performance. We believe there is not a high risk that these receivables are uncollectible.  The Company also recognized an additional allowance of US$62,000 for doubtful receivables in the fiscal year ended March 31, 2007, as compared to US$274,000 for the fiscal year ended March 31, 2006, to ensure accounts and other receivable are not overstated due to uncollectibility. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.   17    Detailed information on allowance for doubtful receivables  March 31, 2007US$000Balance, beginning of year363Additions62Balance, end of year425  Notes receivable  As of March 31, 2007, notes receivable was US$4,014,000, as compared to US$7,759,000 as of March 31, 2006. Notes receivable are mainly settlement of accounts receivable from customers who issued commercial notes as payments.  Inventories  Inventories comprised raw materials, work in progress and finished goods and are stated at the lower of cost or net realizable value. Net realizable value represents replacement cost for raw materials and net realizable value for finished goods and work in progress. Substantially all inventory costs are determined using the weighted average basis. Costs of finished goods include direct materials, subcontracting charges and other overhead before the goods are ready for sale. Inventory costs do not exceed net realizable value.  March 3120072006US$000US$000Inventories8781,982  As of March 31, 2007, the Company had inventories valued at US$878,000, a decrease of US$1,104,000, or 55.7%, compared to US$1,982,000 as at March 31, 2006. The significant decrease was attributed to the change of our business model, focusing on revenue from design services.  Inventories consisted of the following for the years ended March 31:  20072006US$000US$000Raw materials8601,874Work in progress503358Finished goods191182Total1,5542,414Less: allowance for losses676(432)Total8781,982  Raw materials of US$860,000 mainly consist of chipsets, PCB blank boards and multi-processor for PCBs and PCBAs manufacture. We maintain a certain level of key materials as a buffer to avoid a disruption of operating activities, and to ensure on-time delivery of the PCB and PCBA boards to our customers.  The finished goods of $191,000 consist of old models of mobile phones, for which a 100% allowance was made.  We made  an allowance of $421,000 against raw materials which were out-dated, $64,000 against obsolete work in progress and $191,000 against finished goods of old models which may need to be sold at lower than cost.   18    Property, Plant and Equipment  March 3120072006US$000US$000Property, Plant and Equipment3,951398  As of March 31, 2007, our property, plant and equipment amounted to US$3,951,000, which increased significantly from US$398,000 as of  March 31, 2006.  The detailed information on property, plant and equipment is as follows:  March 3120072006US$000US$000CostMachinery4,364205Office equipment404361Motor vehicles10495Total4,872661Accumulated depreciationMachinery64368Office equipment238162Motor vehicles4033Total921263Carrying valueMachinery3,721137Office equipment166199Motor vehicles6462Total3,951398  We acquired testing equipment and software of US$4,143,000 during the year to enhance our GSM, GPRS, WCDMA, TD-SCDMA, and other wireless extended products development capacity.  Land Use Rights  As of March 31, 2007, we have two land use rights in the amount of US$4,698,000 in JinFeng Technology Zone in Fujian Province. Land-use rights are stated at cost, less amortization. Amortization of land-use rights is calculated on the straight-line method, based on the period over which the right is granted by the relevant authorities in Fujian Province, PRC.  Deposits For Property, Plant and Equipment  As of March 31, 2007, we have paid deposits of US$4,698,000 for testing equipment and software. The testing equipment and software will be used for development on WCDMA, TD-SCDMA products development.  Goodwill  On March 19, 2007, Sunplus and Jiaxun acquired 80% and 20%, respectively, of Fujian Qiaoxing.  The acquisition allowed us to manufacture in our own facilities.  This transaction was accounted for using the purchase method of accounting.  As of the acquisition date, the Group recorded the fair market value of Fujian Qiaoxings assets and liabilities.  Fair market value is defined as the amount at which an asset could be bought or sold in a current transaction between willing parties.  The value of Fujian Qiaoxings land use rights was determined by reference to the open market value.  To the extent that the purchase price exceeded the fair value of the assets and liabilities assumed, goodwill was recorded.  19     Liabilities March 3120072006US$000US$000Liabilities19,45011,085Current liabilities15,4837,521Long-term liabilities3,9673,564  Our total liabilities as of March 31, 2007 were US$19,450,000, which consisted of US$15,483,000 in current liabilities and US$3,967,000 in long-term liabilities.  Long-term liabilities amounted to US$3,967,000 as of March 31, 2007, all of which were liabilities due to shareholders.  Capital Resources  Before the acquisition of Wise Target and Amber Link, which gave us a 95% interest in Shanghai Sunplus Communication Co. Ltd., we had no operations and relied on advances from officers and directors to fund our basic administration. We currently have on-going operations and believe we have sufficient capital to continue operations for the next twelve months.  We do not anticipate the need for additional capital at this time. However, should we require additional capital, we may take additional advances or loans from officers, sell equity or find other forms of financing. As of March 31, 2007, we had capital commitment of US$1,867,000 in respect of investment in Fujian QiaoXing of US$1,389,000 and property, plant and equipment of US$478,000.   RISK FACTORS  Set forth below is a description of factors that may affect our business, results of operations and share price from time to time.  Our sales and profitability depend on the continued growth of the mobile communications industry as well as the growth of the new market segments within that industry in which we have recently invested. If the mobile communications industry does not grow as we expect, or if the new market segments on which we have chosen to focus and in which we have recently invested grow less than expected, or if new faster-growing market segments emerge in which we have not invested, our sales and profitability may be adversely affected.  Our business depends on continued growth in mobile communications in terms of the number of existing mobile subscribers who upgrade or simply replace their existing mobile devices, the number of new subscribers and increased usage. As well, our sales and profitability are affected by the extent to which there is increasing demand for, and development of, value-added services, leading to opportunities for us to successfully market mobile devices that feature these services. These developments in our industry are to a certain extent outside of our control. For example, we are dependent on operators in highly penetrated markets to successfully introduce services that cause a substantial increase in usage of voice and data. Further, in order to support a continued increase in mobile subscribers in certain low-penetration markets, we are dependent on operators to increase their sales volumes of lower-cost mobile devices and to offer affordable tariffs. If operators are not successful in their attempts to increase subscriber numbers, stimulate increased usage or drive replacement sales, our business and results of operations could be materially adversely affected.   20    Our industry continues to undergo significant changes. First, the mobile communications, information technology, media and consumer electronics industries are converging in some areas into one broader industry leading to the creation of new mobile devices, services and ways to use mobile devices. Second, while participants in the mobile communications industry once provided complete products and solutions, industry players are increasingly providing specific hardware and software layers for products and solutions. As a result of these changes, new market segments within our industry have begun to emerge and we have made significant investments in new business opportunities in certain of these market segments, such as smartphones, imaging, games, music and enterprise mobility infrastructure. However, a number of the new market segments in the mobile communications industry are still in early states of their development, and it may be difficult for us to accurately predict which new market segments are the most advantageous for us to focus on. As a result, if the segments on which we have chosen to focus grow less than expected, we may not receive a return on our investment as soon as we expect, or at all. We may also forego growth opportunities in new market segments of the mobile communications industry on which we do not focus.  Our results of operations, particularly our profitability, may be adversely affected if we do not successfully manage price erosion related to our products.  In the future, if, for competitive reasons, we need to lower the selling prices of certain of our products and if we cannot lower our costs at the same rate or faster, this may have a material adverse effect on our business and results of operations, particularly our profitability. To mitigate the impact of mix shifts on our profitability, we implement product segmentation with the aim of designing appropriate features with an appropriate cost basis for each customer segment. Likewise, we endeavor to mitigate the impact on our profitability of price erosion of certain features and functionalities by seeking to correctly time the introduction of new products, in order to align such introductions with declines in the prices of relevant components. We cannot predict with any certainty whether or to what extent we may need to lower prices for competitive reasons again and how successful we will be in aligning our cost basis to the pricing at any given point in time. Price erosion is a normal characteristic of the mobile devices industry, and the products and solutions offered by us are also subject to natural price erosion over time. If we cannot reduce our costs at the same rate, our business may be materially adversely affected.  We must develop or otherwise acquire complex, evolving technologies to use in our business. If we fail to develop these technologies or to successfully commercialize them as new advanced products and solutions that meet customer demand, or fail to do so on a timely basis, it may have a material adverse effect on our business, our ability to meet our targets and our results of operations.  In order to succeed in our markets, we believe that we must develop or otherwise acquire complex, evolving technologies to use in our business. However, the development and use of new technologies, applications and technology platforms for our mobile devices involves time, substantial costs and risks both within and outside of our control. This is true whether we develop these technologies internally, by acquiring or investing in other companies or through collaboration with third parties.  The technologies, functionalities and features on which we choose to focus may not achieve as broad or timely customer acceptance as we expect. This may result from numerous factors including the availability of more attractive alternatives or a lack of sufficient compatibility with other existing technologies, products and solutions. Additionally, even if we do select the technologies, functionalities and features that customers ultimately want, we or the companies that work with us may not be able to bring them to the market at the right time.  Furthermore, as a result of ongoing technological developments, our products and solutions are increasingly used together with components or layers that have been developed by third parties, whether or not we have authorized their use with our products and solutions. However, such components, such as batteries, or layers, such as software applications, may not be compatible with our products and solutions and may not meet our and our customers' quality, safety or other standards. As well, certain components or layers that may be used with our products may enable our products and solutions to be used for objectionable purposes, such as to transfer content that might be hateful or derogatory. The use of our products and solutions with incompatible or otherwise substandard components or layers, or for purposes that are inappropriate, is largely outside of our control and could harm our reputation in the industry.   21    We need to understand the different markets in which we operate and meet the needs of our customers, which include mobile network operators, distributors, independent retailers and enterprise customers. We need to have a competitive product portfolio, and to work together with our operator customers to address their needs. Our failure to identify key market trends and to respond timely and successfully to the needs of our customers may have a material adverse impact on our market share, business and results of operations.  We serve a diverse range of customers, ranging from mobile network operators, distributors, independent retailers to enterprise customers, across a variety of markets. In many of these markets, the mobile communications industry is at different stages of development, and many of these markets have different characteristics and dynamics, for example, in terms of mobile penetration rates and technology, feature and pricing preferences. Establishing and maintaining good relationships with our customers and understanding trends and needs in their markets require us to constantly obtain and evaluate a complex array of feedback and other data. We must do this efficiently in order to be able to identify key market trends and address our customers' needs proactively and in a timely manner. If we fail to analyze correctly and respond timely and appropriately to customer feedback and other data, our business may be materially adversely affected.  Certain mobile network operators require mobile devices to be customized to their specifications, by requesting certain preferred features, functionalities or design, together with co-branding with the network operator's brand. We believe that customization is an important element in gaining increased operator customer satisfaction and we are working together with operators on product planning as well as accelerating product hardware and software customization programs. These developments may result in new challenges as we provide customized products, such as the need for us to produce mobile devices in smaller lot sizes, which can impede our economies of scale, or the potential for the erosion of the Sunplus brand, which we consider to be one of our key competitive advantages.  In order to meet our customers' needs, we need to introduce new devices on a timely basis and maintain a competitive product portfolio. For us, a competitive product portfolio means a broad and balanced offering of commercially appealing mobile devices with attractive features, functionality and design for all major user segments and price points. If we do not achieve a competitive portfolio, we believe that we will be at a competitive disadvantage, which may lead to lower revenue and lower profits.  The competitiveness of our portfolio is also influenced by the value of the Sunplus brand. A number of factors, including actual or even alleged defects in our products and solutions, may have a negative effect on our reputation and erode the value of the Sunplus brand.  Competition in our industry is intense. Our failure to respond successfully to changes in the competitive landscape may have a material adverse impact on our business and results of operations.  The markets for our products and solutions are intensely competitive. Industry participants compete with each other mainly on the basis of the breadth and depth of their product portfolios, price, operational and manufacturing efficiency, technical performance, product features, quality, customer support and brand recognition. We are facing increased competition from both our traditional competitors in the mobile communications industry as well as a number of new competitors, particularly from countries where production costs tend to be lower. Some of these competitors have used, and we expect will continue to use, more aggressive pricing strategies, different design approaches and alternative technologies than ours. In addition, some competitors have chosen a strategy of focusing on productization based on commercially available technologies and components, which may enable them to introduce products faster and with lower levels of research and development spending than our company.  As a result of developments in our industry, we also expect to face new competition from companies in related industries, such as consumer electronics manufacturers and business device and solution providers, including but not limited to Dell, HP, Microsoft, Nintendo, Palm, Research in Motion and Sony. Additionally, because mobile network operators are increasingly offering mobile devices under their own brand, we face increasing competition from non-branded mobile device manufacturers. If we cannot respond successfully to these competitive developments, our business and results of operations may be materially adversely affected.   22    Reaching our sales, profitability, volume and market share targets depends on numerous factors. These include our ability to offer products and solutions that meet the demands of the market and to manage the prices and costs of our products and solutions, our operational efficiency, the pace of development and acceptance of new technologies, our success in the business areas that we have recently entered, and general economic conditions. Depending on those factors, some of which we may influence and others of which are beyond our control, we may fail to reach our targets and we may fail to provide accurate forecasts of our sales and results of operations.  A variety of factors discussed throughout these Risk Factors could affect our ability to reach our targets and give accurate forecasts. Although, we can influence some of these factors, some of them depend on external factors that are beyond our control.  In our mobile device businesses, we seek to maintain healthy levels of sales and profitability through offering a competitive portfolio of mobile devices, growing faster than the market, working to improve our operational efficiency, controlling our costs, and targeting timely and successful product introductions and shipments. The quarterly and annual sales and operating results in our mobile device businesses also depend on a number of other factors that are not within our control. Such factors include the global growth in mobile device volumes, which is influenced by, among other factors, regional economic factors, competitive pressures, regulatory environment, the timing and success of product and service introductions by various market participants, including network operators, the commercial acceptance of new mobile devices, technologies and services, and operators' and distributors' financial situations. Our sales and operating results are also impacted by fluctuations in exchange rates and at the quarterly level by seasonality. In developing markets, the availability and cost, through affordable tariffs, of mobile phone service compared with the availability and cost of fixed line networks may also impact volume growth.  In our mobile networks business, we also seek to maintain healthy levels of sales and profitability and try to grow faster than the market. Our networks business's quarterly and annual net sales and operating results can be affected by a number of factors, some of which we can influence, such as our operational efficiency, the level of our research and development investments and the deployment progress and technical success we achieve under network contracts. Other relevant factors include operator investment behavior, which can vary significantly from quarter to quarter, competitive pressures and general economic conditions although these are not within our control.  The new business areas that we have entered may be less profitable than we currently foresee, or they may generate more variable operating results than we currently foresee. We expect to incur short-term operating losses in certain of these new business areas given our early stage investments in research and development and marketing in particular. Also our efforts in managing prices and costs in the long-term, especially balancing prices and volumes with research and development costs, may prove to be inadequate.  Although we may announce forecasts of our results of operations, uncertainties affecting any of these factors, particularly during difficult economic conditions, render our forecasts difficult to make, and may cause us not to reach the targets that we have forecasted, or to revise our estimates.  Our sales and results of operations could be adversely affected if we fail to efficiently manage our manufacturing and logistics without interruption, or fail to ensure that our products and solutions meet our and our customers' quality, safety and other requirements and are delivered in time.  Our manufacturing and logistics are complex, require advanced and costly equipment and include outsourcing to third parties. These operations are continuously modified in an effort to improve manufacturing efficiency and flexibility. We may experience difficulties in adapting our supply to the demand for our products, ramping up or down production at our facilities, adopting new manufacturing processes, finding the most timely way to develop the best technical solutions for new products, or achieving manufacturing efficiency and flexibility, whether we manufacture our products and solutions ourselves or outsource to third parties. Such difficulties may have a material adverse effect on our sales and results of operations and may result from, among other things: delays in adjusting or upgrading production at our facilities, delays in expanding production capacity, failure in our manufacturing and logistics processes, failures in the activities we have outsourced, and interruptions in the data communication systems that run our operations. Also, a failure or an interruption could occur at any stage of our product creation, manufacturing and delivery processes, resulting in our products and solutions not meeting our and our customers' quality, safety and other requirements, or being delivered late, which could have a material adverse effect on our sales, our results of operations and reputation and the value of the Sunplus brand.   23     We depend on our suppliers for the timely delivery of components and for their compliance with our supplier requirements, such as, most notably, our and our customers' product quality, safety and other standards. Their failure to do so could adversely affect our ability to deliver our products and solutions successfully and on time.  Our manufacturing operations depend to a certain extent on obtaining adequate supplies of fully functional components on a timely basis. Our principal supply requirements are for electronic components, mechanical components and software, which all have a wide range of applications in our products. Electronic components include integrated circuits, microprocessors, standard components, memory devices, cameras, displays, batteries and chargers while mechanical components include covers, connectors, key mats and antennas. In addition, a particular component may be available only from a limited number of suppliers. Suppliers may from time to time extend lead times, limit supplies or increase prices due to capacity constraints or other factors, which could adversely affect our ability to deliver our products and solutions on a timely basis. Moreover, even if we attempt to select our suppliers and manage our supplier relationships with scrutiny, a component supplier may fail to meet our supplier requirements, such as, most notably, our and our customers' product quality, safety and other standards, and consequently some of our products are unacceptable to us and our customers, or we may fail in our own quality controls. Moreover, a component supplier may experience delays or disruption to its manufacturing, or financial difficulties. Any of these events could delay our successful delivery of products and solutions, which meet our and our customers' quality, safety and other requirements, or otherwise adversely affect our sales and our results of operations. Also, our reputation and brand value may be affected due to real or merely alleged failures in our products and solutions.  We are developing a number of our new products and solutions together with other companies. If any of these companies were to fail to perform, we may not be able to bring our products and solutions to market successfully or in a timely way and this could have a material adverse impact on our sales and profitability.  We continue to invite the providers of technology, components or software to work with us to develop technologies or new products and solutions. These arrangements involve the commitment by each company of various resources, including technology, research and development efforts, and personnel. Although the target of these arrangements is a mutually beneficial outcome for each party, our ability to introduce new products and solutions that meet our and our customers' quality, safety and other standards successfully and on schedule could be hampered if, for example, any of the following risks were to materialize: the arrangements with the companies that work with us do not develop as expected, the technologies provided by the companies that work with us are not sufficiently protected or infringe third parties' intellectual property rights in a way that we cannot foresee or prevent, the technologies, products or solutions supplied by the companies that work with us do not meet the required quality, safety and other standards or customer needs, our own quality controls fail, or the financial standing of the companies that work with us deteriorates.  Our operations rely on complex and highly centralized information technology systems and networks. If any system or network disruption occurs, this reliance could have a material adverse impact on our operations, sales and operating results.  Our operations rely to a significant degree on the efficient and uninterrupted operation of complex and highly centralized information technology systems and networks, which are integrated with those of third parties. Any failure or disruption of our current or future systems or networks could have a material adverse effect on our operations, sales and operating results. Furthermore, any data leakages resulting from information technology security breaches could also adversely affect us.  All information technology systems are potentially vulnerable to damage or interruption from a variety of sources. We pursue various measures in order to manage our risks related to system and network disruptions, including the use of multiple suppliers and available information technology security. However, despite precautions taken by us, an outage in a telecommunications network utilized by any of our information technology systems, virus or other event that leads to an unanticipated interruption of our information technology systems or networks could have a material adverse effect on our operations, sales and operating results.   24    Our products and solutions include increasingly complex technology involving numerous new proprietary technologies, as well as some developed or licensed to us by certain third parties. As a consequence, evaluating the protection of the technologies we intend to use is more and more challenging, and we expect increasingly to face claims that we have infringed third parties' intellectual property rights. The use of increasingly complex technology may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products and solution offerings, and/or costly and time-consuming litigation. Third parties may also commence actions seeking to establish the invalidity of intellectual property rights on which we depend.  Our products and solutions include increasingly complex technology involving numerous new proprietary technologies, as well as some developed or licensed to us by certain third parties. As the amount of such proprietary technologies needed for our products and solutions continues to increase, the number of parties claiming rights continues to increase and become more fragmented within individual products, and as the complexity of the technology and the overlap of product functionalities increases, the possibility of more infringement and related intellectual property claims against us also continues to increase. The holders of patents potentially relevant to our product and solution offerings may be unknown to us, or may otherwise make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by others which could damage our ability to rely on such technologies.  In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid risks of intellectual property rights infringement created by suppliers of components and various layers in our products and solutions or by companies with which we work in cooperative research and development activities. Similarly, we and our customers may face claims of infringement in connection with our customers' use of our products and solutions. Finally, as all technology standards, including those used and relied on by us, include some intellectual property rights, we cannot fully avoid risks of a claim for infringement of such rights due to our reliance on such standards. We believe that the number of third parties declaring their intellectual property to be relevant to these standards is increasing, which may increase the likelihood that we will be subject to such claims in the future.  Any restrictions on our ability to sell our products and solutions due to expected or alleged infringements of third party intellectual property rights and any intellectual property rights claims, regardless of merit, could result in material losses of profits, costly litigation, the payment of damages and other compensation, the diversion of the attention of our personnel, product shipment delays or the need for us to develop non-infringing technology or to enter into royalty or licensing agreements. If we were unable to develop non-infringing technology, or if royalty or licensing agreements were not available on commercially acceptable terms, we could be precluded from making and selling the affected products and solutions. As new features are added to our products and solutions, we may need to acquire further licenses, including from new and sometimes unidentified owners of intellectual property. The cumulative costs of obtaining any necessary licenses are difficult to predict and may over time have a negative effect on our operating results.  In addition, other companies may commence actions seeking to establish the invalidity of our intellectual property, for example, patent rights. In the event that one or more of our patents are challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could harm our competitive position. If any of our key patents are invalidated, or if the scope of the claims in any of these patents is limited by a court decision, we could be prevented from licensing the invalidated or limited portion of our intellectual property rights. Even if such a patent challenge is not successful, it could be expensive and time consuming, divert management attention from our business and harm our reputation. Any diminution of the protection that our own intellectual property rights enjoy could cause us to lose some of the benefits of our investments in R&D, which may have a negative effect on our results of operations.  If we are unable to recruit, retain and develop appropriately skilled employees, we may not be able to implement our strategies and, consequently, our results of operations may suffer.  We must continue to recruit, retain and through constant competence training develop appropriately skilled employees with a comprehensive understanding of our businesses and technologies. As competition for skilled personnel remains keen, we seek to create a corporate culture that encourages creativity and continuous learning. We are also continuously developing our compensation and benefit policies and taking other measures to attract and motivate skilled personnel. Nevertheless, we have encountered in the past, and may encounter in the future, shortages of appropriately skilled personnel, which may hamper our ability to implement our strategies and harm our results of operations.  25     The global networks business relies on a limited number of customers and large multi-year contracts. Unfavorable developments under such a contract or in relation to a major customer may affect our sales, our results of operations and cash flow adversely.  Large multi-year contracts, which are typical in the networks industry, include a risk that the timing of sales and results of operations associated with these contracts will be different than expected. Moreover, they usually require the dedication of substantial amounts of working capital and other resources, which impacts our cash flow negatively. Any non-performance by us under these contracts may have significant adverse consequences for us because network operators have demanded and may continue to demand stringent contract undertakings such as penalties for contract violations.  Our sales derived from, and assets located in, emerging market countries may be adversely affected by economic, regulatory and political developments in those countries. As sales from these countries represent an increasing portion of our total sales, economic or political turmoil in these countries could adversely affect our sales and results of operations. Our investments in emerging market countries may also be subject to other risks and uncertainties.  We generate sales from and have invested in various emerging market countries. As sales from these countries represent an increasing portion of our total sales, economic or political turmoil in these countries could adversely affect our sales and results of operations. Our investments in emerging market countries may also be subject to risks and uncertainties, including unfavorable taxation treatment, exchange controls, challenges in protecting our intellectual property rights, nationalization, inflation, incidents of terrorist activity, currency fluctuations, or the absence of, or unexpected changes in, regulation as well as other unforeseeable operational risks.  Allegations of health risks from the electromagnetic fields generated by base stations and mobile devices, and the lawsuits and publicity relating to them, regardless of merit, could affect our operations negatively by leading consumers to reduce their use of mobile devices or by causing us to allocate monetary and personnel resources to these issues.  There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. While a substantial amount of scientific research conducted to date by various independent research bodies has indicated that these radio signals, at levels within the limits prescribed by public health authority safety standards and recommendations, present no adverse effect to human health, we cannot be certain that future studies, irrespective of their scientific basis, will not suggest a link between electromagnetic fields and adverse health effects that would adversely affect our sales and share price. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific and public understanding of these issues.  Although Sunplus products and solutions are designed to meet all relevant safety standards and recommendations globally, no more than a perceived risk of adverse health effects of mobile communications devices could adversely affect us through a reduction in sales of mobile devices or increased difficulty in obtaining sites for base stations, and could have a negative effect on our reputation and brand value as well as harm our share price.  Changes in various types of regulation in countries around the world could affect our business adversely.  Our business is subject to direct and indirect regulation in each of the countries in which we, the companies with which we work or our customers do business. As a result, changes in various types of regulations applicable to current or new technologies, products or services could affect our business adversely. For example, it is in our interest that the Federal Communications Commission maintains a regulatory environment that ensures the continued growth of the wireless sector in the United States. In addition, changes in regulation affecting the construction of base stations and other network infrastructure could adversely affect the timing and costs of new network construction or expansion and the commercial launch and ultimate commercial success of these networks.   26    Moreover, the implementation of new technological or legal requirements, such as the requirement in the United States that all handsets must be able to indicate their physical location, could impact our products and solutions, manufacturing or distribution processes, and could affect the timing of product and solution introductions, the cost of our production, products or solutions as well as their commercial success. Finally, export control, tariff, environmental, safety and other regulation that adversely affects the pricing or costs of our products and solutions as well as new services related to our products could affect our net sales and results of operations. The impact of these changes in regulation could affect our business adversely even though the specific regulations do not always directly apply to us or our products and solutions.  Item 7. Financial Statements.  The financial statements of the Company appear at Page F-1.  Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.  None.  Item 8A. Controls and Procedures.  (a) Evaluation of Disclosure Controls and Procedures.  The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the Company's "disclosure, controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e) as of the end of the period covered by this annual report (the "Evaluation Date").  Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure, controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.  (b) Changes in Internal Control over Financial Reporting.  There were no changes in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Item 8B.  Other Information  March, 2007, JiaXun, a 100% subsidiary of Sunplus, and Sunplus respectively acquired 20% and 80% interests in Fujian QiaoXing Industry Co.,Ltd.(Fujian QiaoXing), which will focus on the manufacture of telephone and mobile components.  This acquisition allowed us to manufacture in our own facilities. Fujian QiaoXing was established on February 13, 2004, with registered capital of RMB25,000,000 (US$2,590,000).   27    PART III  Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.  The following table sets forth the name, age, position and office term of each executive officer and director of the Company.  NameAgePositionsSinceXiaofeng Li30Director and Chief Executive OfficerAugust 2005Meilian Li35Chairman of the BoardAugust 2005Zhaohui Luo38DirectorAugust 2005Murry Zuhe Xiao39Chief Financial OfficerAugust 2005Eric Xue32Chief Technical OfficerAugust 2005  The following is a brief summary of the business experience of our management.  Mr. Xiaofeng Li, Director and Chief Executive Officer.  Mr. Li holds a Bachelor Degree from Shanghai University, Industrial Design Department. From August 1998 to February 2001, Mr. Li was employed by Inventec Appliances Corp. where he was an Industrial Designer.  From 2001 to March 2002, Mr. Li was employed by Shanghai Fanna Industrial Product Design Co., Ltd. as executive director and general manager.  Since April 2002, Mr. Li has been Chairman of the Board of Shanghai Sunplus Communication Technology Co., Ltd.  Mr. Murry Zuhe Xiao, Chief Financial Officer.  Mr. Xiao is a Fellow Member of the Institute of Financial Accountant Association, a member of the Society of Registered Financial Planners, and a Member of China Institute of Certified Public Accountants.  Mr. Xiao holds a post graduate Certificate in Professional Accounting from City University, Hong Kong.  He also holds a degree in Economics from the Jiang Xi University of Finance and Economics.  Since 1999, Mr. Xiao had worked for Qiao Xing Universal Telephone, Inc. as Finance Manager for about 4 years   Mr. Xiao joined our Company in 2005.  Ms. Meilian Li, Chairman of the Board.Ms. Li holds a Bachelor Degree in Accounting from Guangzhou Nanyang College.  From 2000 to the present, Ms. Li has held the position of Board Chairman of Shenzhen Youlian Transportation, Inc. where she is responsible for human resource management, strategic planning and financial management.  Mr. Zhaohui Luo, Director.  Mr. Luo holds a Masters of Business Administration from East China Normal University.  From 1993 to 2002, Mr. Luo was director and general manager of Huizhou Ganghui Electronic Engineering System Co., Ltd. He serves as a General Manger for Guangdong Consun Group, Shanghai Office since 2002.  Mr. Eric Xue, Chief Technical Officer.  Mr. Eric Xue served as Chief Technical Officer of Sunplus since 2003 in charge of research and development of hardware and software.  Mr. Xue worked as Section Manager in Motorola Electronics In Shanghai from 2000 until 2002. He previously worked at Inventic Application, Inc. as an electrical engineer.  Mr. Xue holds a Bachelor degree of Electronic and Communication Systems from Huadong Shifan University.  The Company has no audit committee financial expert, as defined under Section 228.401, serving on its audit committee because it has no audit committee and is not required to have an audit committee because it is not a listed security as defined in Section 240.10A-3.   28    Compliance with Section 16  Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and persons who own more than ten percent of a registered class of its equity securities to file reports of ownership and changes in their ownership on Forms 3, 4, and 5 with the Securities and Exchange Commission, and forward copies of such filings to the Company. Based on the copies of filings received by the Company during the most recent fiscal year the directors, officers, and beneficial owners of more than ten percent of the equity securities of the Company registered pursuant to Section 12 of the Exchange Act have filed on a timely basis all required Forms 3, 4, and 5 and any amendments thereto.  Code of Ethics  We have recently adopted a Code of Ethics and Business Conduct authorizing the establishment of a committee to ensure that our disclosure controls and procedures remain effective.  Our Code also defines the standard of conduct expected by our officers, directors and employees.  The Code was filed as an exhibit to our Form 10-KSB for the fiscal year end 2003 and is incorporated herein by reference.   29    Item 10. Executive Compensation.  SUMMARY COMPENSATION TABLE  Summary Compensation Table for 2006 and 2005Non-EquityChange in Pension ValueName andStockOptionIncentive Planand NonqualifiedAll OtherPrincipalSalaryBonusAwardsAwardsCompensationDeferred CompensationCompensationTotalPositionYear($)($)($)($)($)Earnings ($)($)($)(a)(b)( c)(d)(e)(f)(g)(h)(i)(j)Tianpei Li (1)2005-0--0--0--0--0--0--0--0-Principal Executive OfficerSilu Wu (1)2005-0--0--0--0--0--0--0--0-CFOXiaofeng Li200630,811-0--0--0--0--0-3,95834,769CEO200757,594-0--0--0--0-4,08261,676Murry Zuhe Xiao200623,126-0--0--0--0--0--0-23,126CFO200750,223-0--0--0--0--0--0-50,223  (1) Resigned in August 2005  Compensation Plans  We do not currently have any written compensation plans for any of our employees.  Compensation of Board Members  Although we do not have a written compensation plan, Board members generally do not receive any remuneration for service on the Board.  Item 11.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters.  The following table sets forth as of May 1, 2007, the name and shareholdings of each person known to us that either directly or beneficially holds more than 5% of our 30,088,174 issued and outstanding shares of common stock, par value $.001.  The table also lists the name and shareholdings of each director and of all officers and directors as a group.  Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.  30     Name and AddressTitle of ClassNumber of Shares Beneficially Owned% of SharesLi, Xiaofeng (1) (2)
18th Floor YongSheng Building
XhongShang XI Road
Xuhui District, Shanghai, ChinaCommon2,600,0008.64%Li, Meilian (1)
18th Floor YongSheng Building
XhongShang XI Road
Xuhui District, Shanghai, ChinaCommon15,950,00053.01%Luo, Zhaohui (1)
18th Floor YongSheng Building
XhongShang XI Road
Xuhui District, Shanghai, ChinaCommon-0--0-Xiao, Murry Zuhe (2)
18th Floor YongSheng Building
XhongShang XI Road
Xuhui District, Shanghai, ChinaCommon-0--0-Xue, Eric (2)
18th Floor YongSheng Building
XhongShang XI Road
Xuhui District, Shanghai, ChinaCommon-0--0-Officers and Directors as a group
5 PeopleCommon18,550,00061.65%  (1)  Director. (2)  Officer  Item 12.  Certain Relationships and Related Transactions.  The Company advanced US$17,000 to Mr.Li Xiaofeng, a director and our Chief Executive Officer for business trip expenses which was recorded as a receivable as at March 31, 2007. These advances were subsequently settled and recorded as expenses for the next fiscal year. We owed Mr. Li US$773,000 which is recorded as a long term liability.  The Company advanced US$6,000 to Eric Yue, our Chief Technical Officer for business trip expenses which was recorded as a receivable as at March 31, 2006.  The amount was subsequently settled and recorded as expenses in the current fiscal year.  Li Meilian, Chairman of the Board and a shareholder is owed US$3,393,000 of which US$3,194,000 was recorded as a long term liability.  LEA Management Group, LLC, a former shareholder, is owed US$25,000 for service fees which was recorded as other payables.  We also paid LEA Management US$60,000 and US$58,000 in service fees for the years ended March 31, 2007 and 2006.   31    Item 13.  Exhibits.  Exhibit No. SEC Ref. No. Title of Document Location  Exhibit NumberTitleLocation14Code of Ethics10-KSB filed 6/2/0431.1Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Attached31.2Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Attached32.1Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*Attached32.2Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*Attached  *The Exhibit attached to this Form 10-KSB shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. Item 14.  Principal Accountant Fees and Services.  Audit Fee  The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of T-BAY Holdings, Inc.s annual financial statement and review of financial statements included in T-BAY Holdings, Inc.s 10-QSB reports and services normally provided by the accountant in connection with statutory and regulatory filings or engagements were US$136,000 for fiscal year ended 2007 and US$104,000 for fiscal year ended 2006.  Audit-Related Fees  The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of T-Bays financial statements that are not reported above were $nil for fiscal year ended 2007 and $nil for fiscal year ended 2006.  Tax Fees  The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advise, and tax planning were $nil for fiscal year ended March 31, 2007 and $nil for fiscal year ended March 31, 2006.  All Other Fees  There were no other aggregate fees billed in either of the last two fiscal years for products and services provided by the principal accountant, other than the services reported above.  32     We do not have an audit committee currently serving and as a result, our board of directors performs the duties of an audit committee.  Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.  We do not rely on pre-approval policies and procedures.  SIGNATURES  In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.   Date: June 29, 2007 By: /s/ Xiaofeng Li Xiaofeng Li, Chief Executive Officer    Date:  June 29, 2007 By: /s/ Murry Zuhe Xiao Murry Zuhe Xiao, Chief Financial Officer    In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   By: /s/ Meilian Li By: /s/ Xiaofeng Li Meilian Li, Chairman of the Board of Directors Xiaofeng Li, Director  Date: June 29, 2007 Date: June 29, 2007   By: /s/ Zhaohui Luo Zhaohui Luo, Director   Date: June 29, 2007  33


T-BAY HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 Together With Report Of Independent Registered Public Accounting Firm     T-BAY HOLDINGS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   Report of Independent Registered Public Accounting Firm F-2  Consolidated Balance Sheet F-3  Consolidated Statements of Operations F-4  Consolidated Statement of Changes in Stockholders Equity F-5  Consolidated Statements of Cash Flows F-6  Notes to Consolidated Financial Statements F-7             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   The Board of Directors and Stockholders of T-Bay Holdings, Inc.   We have audited the accompanying consolidated balance sheet of T-Bay Holdings, Inc. and subsidiaries (the Company) as of March 31, 2007, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the two years in the period then ended.  These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2007 and the results of its operations and cash flows for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America.   /s/ Moore StephensMoore Stephens Certified Public Accountants Hong Kong  June 29, 2007  F-2   T-BAY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 2007 (In thousands of United States dollars) Note(s)MARCH 31, 2007ASSETSCURRENT ASSETSCash and cash equivalents$67Notes receivables4,014Accounts receivable, net319,317Prepayments, deposits and other receivables, netRelated parties1017Third parties3,208Value Added Tax (VAT) recoverable21Inventories4878Total current assets27,522PROPERTY, PLANT AND EQUIPMENT, NET53,951CONSTRUCTION IN PROGRESS1,910DEPOSIT FOR PROPERTY, PLANT AND EQUIPMENT4,698LAND USE RIGHTS2(i)9,488GOODWILL114,873INTANGIBLE ASSETS, NET631TOTAL ASSETS$52,473LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable$2,570Accruals and other payablesRelated parties10199Third parties7,857Receipts in advance2,675Income tax payable2,182Total current liabilities19,450LONG-TERM LIABILITIESDue to shareholders103,967Total liabilities17,385MINORITY INTERESTS1,303COMMITMENTS AND CONTINGENCIES12STOCKHOLDERS EQUITYPreferred stock, authorized 10,000,000 shares, par value
$0.001, issued and outstanding Nil2(p)-Common stock, authorized 100,000,000 shares, par value $0.001, issued and outstanding 30,088,17430Additional paid-in capital1,462Public welfare fund1,430Statutory surplus fund2,859Retained earnings23,975Accumulated other comprehensive income1,964Total stockholders equity31,720TOTAL LIABILITIES AND STOCKHOLDERS EQUITY$52,473 The accompanying notes are an integral part of these consolidated financial statements.  F-3   T-BAY HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended March 31, 2007 and 2006 (In thousands of United States dollars, except per share data)  Note(s)YEAR ENDED MARCH 31,20072006NET REVENUE$35,236$25,527COST OF REVENUE17,6069,612GROSS PROFIT17,63015,915OPERATING EXPENSESSelling expenses292234General and administrative expenses3,0093,334TOTAL OPERATING EXPENSES3,3013,568INCOME FROM OPERATIONS14,32912,347OTHER INCOME723INTEREST EXPENSE(3)(1)INCOME BEFORE INCOME TAX
AND MINORITY INTERESTS14,33312,369INCOME TAX: CURRENT7(1,701)(1,746)INCOME BEFORE MINORITY INTERESTS12,63210,623MINORITY INTERESTS(429)(541)NET INCOME12,20310,082OTHER COMPREHENSIVE INCOMEForeign currency translation adjustment1,548423COMPREHENSIVE INCOME$13,751$10,505WEIGHTED AVERAGE NUMBER
OF SHARES (in thousands)30,08829,273EARNINGS PER SHARE (in dollars)2 (q)$0.41$0.34  The accompanying notes are an integral part of these consolidated financial statements.    F-4   T-BAY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY For the years ended March 31, 2007 and 2006 (In thousands of United States dollars)  COMMON STOCKADDITIONAL PAID-IN CAPITALPUBLIC WELFARE FUNDSTATUTORY SURPLUS FUNDRETAINED EARNINGSACCUMULATED OTHER COMPREHENSIVE INCOMETOTAL
STOCKHOLDERS EQUITYNo. of sharesBalance,April 1, 200530,088,174$  30$  1,462$     -$   513$   5,167$    (7)$   7,165Net income-----10,082-10,082Transfer---809937(1,746)--Foreigncurrencytranslationadjustment----167-423590Balance,
March 31,  200630,088,174$  30$  1,462$  809$  1,617$  13,503$   416$  17,837Net income---12,20312,203Transfer---5771,154(1,731)--Foreigncurrencytranslationadjustment---4488-1,5481,680Balance,March 31,  200730,388,174$  30$  1,462$ 1,430$ 2,859$  23,975$ 1,964$  31,720  The accompanying notes are an integral part of these consolidated financial statements.  F-5   T-BAY HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended March 31, 2007 and 2006 (In thousands of United States dollars)  FOR THE YEAR ENDED
MARCH 31,20072006CASH FLOWS FROM OPERATING ACTIVITIESNet income$12,203$10,082Adjustments to reconcile net income to net cash generated from
operating activities:Depreciation642154Amortization1413Allowances for doubtful receivables62274Allowance for inventories244432Minority interests429541Loss on disposal of property, plant and equipment55Changes in operating assets and liabilities:Increase in accounts receivable(4,210)(5,866)Decrease/(increase) in notes receivable3,949(7,759)(Increase)/decrease in prepayments, deposits and other receivables(1,004)317Decrease in inventories9095,868Decrease in accounts payable(7)(3,400)Increase in accruals and other payables1,1611,013Increase in receipts in advance1,152834Decrease in VAT recoverable(1)(391)Increase in income tax payable1711,746Net cash generated from operating activities15,7193,863CASH FLOWS FROM INVESTING ACTIVITIESCash outflow from acquisition of subsidiary (Note 11)(12,565)-Acquisition of property, plant and equipment(4,096)(5)Proceeds received from disposal of property, plant and equipment14-Deposit paid for property, plant and equipment(4,698)-Acquisition of intangible assets(3)(2)Net cash used in investing activities(21,348)(7)CASH FLOWS FROM FINANCING ACTIVITIESDecrease in minority interests35188Increase in amounts due to shareholders6022Net cash generated from financing activities95390Effect of exchange rate changes on cash7021Net increase in cash and cash equivalents(4,606)3,967Cash and cash equivalents at beginning of year4,673706Cash and cash equivalents at end of year$67$4,673SUPPLEMENTAL INFORMATIONIncome taxes paid$1,530$-Interest paid$3$1  The accompanying notes are an integral part of these consolidated financial statements.  F-6   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007   1. The Company and subsidiaries  T-Bay Holdings, Inc. (the Company or T-Bay) was incorporated under the laws of the State of Utah on August 8, 1984 as Sharus Corporation with authorized common stock of 50,000,000 shares with a par value of $0.001.  On June 13, 1989, the domicile of the Company was changed to the state of Nevada in connection with a name change to Golden Quest, Inc..  On January 7, 2002, the name was changed to T-Bay Holdings, Inc. as part of a reverse stock split of 400 shares of outstanding stock for one share and on November 23, 2004, the Company increased the authorized common stock to 100,000,000 shares with a par value of $.001 as part of a reverse stock split of 20 outstanding shares for one share.  On August 16, 2005, pursuant to an Agreement and Plan of Reorganization, T-Bay issued 18,550,000 shares of its common stock for all of Amber Link International Limiteds (Amber Link) and Wise Target International Limiteds (Wise Target) outstanding shares of common stock (the Merger).  Amber Link and Wise Target are two of the owners of Shanghai Sunplus Communication Co., Ltd. (Sunplus).  As of March 31, 2007, Wise Target owned a 75% interest (2006: 74%) and Amber Link owned a 20% (2006: 21%) interest in Sunplus.  After the Merger and as of March 31, 2007, T-Bay indirectly owned a 95% interest in Sunplus.  Wise Target was incorporated on April 24, 2002 under the International Business Companies Act in the British Virgin Islands.  Amber Link was incorporated on May 10, 2002 under the International Business Companies Act in the British Virgin Islands.  During the year ended March 31, 2007, Amber Link commenced the sales of mobile phones and components.  Sunplus was established on October 17, 2002 under the laws of the Peoples Republic of China (PRC) as a Sino-foreign joint venture specialized in the development, production and sales of electronic telecommunication devices.  Sunplus commenced operations on May 1, 2003.  At March 31, 2007, Sunplus has approximately 150 staff, mostly engineers and software programmers.  On February 12, 2007, Sunplus established a wholly-owned subsidiary, Zhangzhou JiaXun Communication Facility Co., Ltd. (Zhangzhou JiaXun) under the laws of the PRC.  Zhangzhou JiaXun is an investment holding company.  On March 19, 2007, Sunplus and Zhangzhou JiaXun acquired 80% and 20%, respectively, of Fujian Qiaoxing Industry Co., Ltd. (Fujian Qiaoxing) (Note 11).  Fujian Qiaoxing has not commenced operations as of March 31, 2007. [tbay307ksb002.gif]   F-7   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   2. Summary of Significant Accounting Policies  (a) Basis of Preparation and Consolidation  The consolidated financial statements for the year ended March 31, 2007 include the financial statements of T-Bay and its subsidiaries (hereinafter, referred to collectively as the Group) and are prepared in conformity with accounting principles generally accepted in the United States of America. All significant inter-company balances and transactions have been eliminated in consolidation.  The consolidated balance sheet as of March 31, 2007 includes T-Bay, Wise Target, Amber Link, Sunplus, Zhangzhou JiaXun and Fujian Qiaoxing.  The consolidated statement of operations for the year ended March 31, 2007 includes T-Bay, Wise Target, Amber Link and Sunplus for the full year and Zhangzhou JiaXun and Fujian Qiaoxing from date of establishment/acquisition.  The consolidated statement of operations for the year ended March 31, 2006 includes Wise Target and Sunplus for the full year, and Amber Link and T-Bay from August 16, 2005.  (b) Goodwill  Goodwill arising on consolidation represents the excess of the cost of acquisition over the Groups interest in the fair value of the identifiable assets and liabilities of subsidiary at the date of acquisition. Goodwill is recognized as an asset and carried at cost less impairment.  In accordance with SFAS No. 142, goodwill is tested for impairment on an annual basis.  Recognized impairment losses of goodwill cannot be reversed.  Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.  (c) Use of Estimates  In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported periods. Significant estimates include useful lives of depreciable and amortizable assets and allowance for doubtful receivables.  Actual results could differ from those estimates.  (d) Cash and Cash Equivalents  The Group considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of March 31, 2007, the Group did not have any cash equivalents.  (e) Allowance for Doubtful Receivables  The Group recognizes an allowance for doubtful receivables to ensure accounts and other receivable are not overstated due to uncollectibility.  Allowance for doubtful receivables is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience.  An additional allowance for individual accounts is recorded when the Group becomes aware of a customers or other debtors inability to meet its financial obligation, such as in the case of bankruptcy filings or deterioration in the customers or other debtors operating results or financial position. If circumstances related to customers or debtors change, estimates of the recoverability of receivables would be further adjusted (See Note 3).    F-8   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   (f) Inventories  Inventories comprise raw materials, work in progress and finished goods and are stated at the lower of cost or market.  Market value represents replacement cost for raw materials and net realizable value for finished goods and work in progress.  Substantially all inventory costs are determined using the weighted average basis. Costs of finished goods include direct materials, subcontracting charges and other overhead before the goods are ready for sale.  Inventory costs do not exceed net realizable value.   (g) Property, Plant and Equipment  Property, plant and equipment is stated at cost. Depreciation is provided principally by use of the straight-line method over the estimated useful lives of the related assets.  Expenditure for maintenance and repairs, which does not improve or extend the expected useful life of the assets, is expensed to operations while major repairs are capitalized.  Management estimates that property, plant and equipment have a 10% residual value.  The estimated useful lives are as follows:  Machinery 5 years Office equipment 5 years Motor vehicles 5 years  The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets, and, if any, is recognized in the statement of operations and comprehensive income.  (h) Construction in progress  Construction in progress represents factory buildings under construction and machinery under installation and is stated at cost and not depreciated.  Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.  (i) Land use rights  Land-use rights are stated at cost, less amortization. Amortization of land-use rights is calculated on the straight-line method, based on the period over which the right is granted by the relevant authorities in Fujian Province, PRC.  (j) Intangible Assets  Intangible assets consist of software and patents and are amortized using the straight-line method over their estimated useful life of 5 years.  (k) Impairment of Assets  In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", the Group evaluates its long-lived assets to determine whether later events and circumstances warrant revised estimates of useful lives or a reduction in carrying value due to impairment. If indicators of impairment exist and if the value of the assets is impaired, an impairment loss would be recognized.  As of March 31, 2007, no impairment loss has been recognized.  F-9   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   (l) Income Taxes  The Group accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes".  Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  The Group reviews the differences between the tax bases under PRC tax laws and financial reporting under US GAAP.  As of March 31, 2007, no material differences were found; therefore, there were no material deferred tax assets or liabilities arising from the operations of the subsidiaries in the PRC.  Under current PRC tax laws, no tax is imposed in respect to distributions paid to owners except individual income tax.  (m) Revenue Recognition  Revenue from goods sold is recognized when title has passed to the purchaser, which generally is at the time of delivery.  Revenue from design services is recognized when earned on the basis of the terms specified in the underlying contractual agreements.  (n) Research and development costs  Research and development costs consist of expenditure incurred during the course of planned research and investigation aimed at discovery of new knowledge which will be useful for developing new products or significantly enhancing existing products, and the implementation of such through design and testing of product alternatives.  All expenses incurred in connection with the Groups research and development activities are charged to current income.  During the two years ended March 31, 2007 and 2006, research and development costs amounting to $92,000 and $176,000, respectively, were charged to operations and are included in cost of revenue.  (o) Foreign Currency Transactions  The functional currencies of the Group are U.S. dollars, Hong Kong dollars and Renminbi, and its reporting currency is U.S. dollars.The Groups balance sheet accounts are translated into U.S. dollars at the year-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during the periods in which these items arise.  Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders equity.  Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the consolidated statement of operations as incurred.  The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Group because it has not engaged in any significant transactions that are subject to the restrictions.        F-10   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   (p) Fair Value of Financial Instruments  SFAS No. 107, Disclosures about Fair Values of Financial Instruments, requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance sheet.  The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.  For certain financial instruments, including cash, accounts, notes and other receivables, accounts payable, accruals and other payables, it was assumed that the carrying amounts approximate fair value because of the near term maturities of such obligations.  (q) Earnings Per Share  Basic earnings per share is computed by dividing the earnings for the year by the weighted average number of common shares outstanding for the year.  Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including stock options and warrants, in the weighted average number of common shares outstanding for the year, if dilutive.  There are no common stock equivalents in 2007 and 2006.  (r) Profit Appropriation  In accordance with PRC regulations, the PRC subsidiaries are required to make appropriations to the statutory surplus reserve, based on after-tax net income determined in accordance with PRC GAAP. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entitys registered capital. Appropriations to the statutory public welfare fund and discretionary surplus reserve fund are made on the same basis as statutory surplus fund, normally at 5%-10% or higher rates and are generally optional at the discretion of the Board of Directors.  Statutory surplus reserve is non-distributable other than in liquidation.  (s) Preferred stock  No shares of preferred stock have been issued or are outstanding. Dividends, voting rights and other terms, rights and preferences of the preferred shares have not been designated but may be designated by our board of directors from time to time.   3. Allowance for Doubtful Receivables  MARCH 31, 2007US$000Balance, beginning of year363Additions62Balance, end of year425          F-11   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   4. Inventories  As of March 31, 2007, inventories consisted of the following:  MARCH 31, 2007US$000Raw materials860Work in progress503Finished goods1911,554Less: allowance for losses(676)Total878  The changes in the inventory allowances are summarized as follows:  MARCH 31, 2007US$000Balance, beginning of year432Additions244Balance, end of year676   5. Property, Plant and Equipment, Net  MARCH 31, 2007US$000CostMachinery4,364Office equipment404Motor vehicles1044,872Accumulated depreciationMachinery643Office equipment238Motor vehicles40921Carrying valueMachinery3,721Office equipment166Motor vehicles643,951  Depreciation expense for each of the years ended March 31, 2007 and 2006 was approximately $642,000 and $154,000, respectively.   F-12   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   6. Intangible Assets, Net  MARCH 31, 2007US$000CostSoftware68Patents371Accumulated amortizationSoftware39Patents140Carrying valueSoftware29Patents231  Amortization expense for each of the year ended March 31, 2007 and 2006 was approximately $14,000 and $13,000, respectively.  The estimated amortization expense for the five years ending March 31, 2008, 2009, 2010, 2011 and 2012 amounts to approximately $14,000,$14,000,$2,000,$1,000 and $nil, respectively.   7. Income Taxes  Amber Link and Wise Target are not subject to income taxes in any tax jurisdiction.  No provision for income tax for T-Bay has been made as it incurred a loss for the year.  Sunplus is subject to PRC Income Tax.  Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax in Shanghai is 27% (24% national income tax plus 3% local income tax).  Zhangzhou JiaXun and Fujian Qiaoxing have not commenced operations.  Pursuant to the relevant laws and regulations in the PRC, Sunplus is entitled to an exemption from PRC income tax for two years starting from its first profitable year.  As Sunplus statutory year-end is December 31, the tax exemption applied to the period from January 1, 2003 to December 31, 2004.  Sunplus is also entitled to three years of 50% exemption after the expiration of the two years of full exemption.  The 50% tax exemption applies to the period from January 1, 2005 to December 31, 2007.   F-13   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   7. Income Taxes (continued)  A reconciliation between taxes computed at the United States statutory rate of 34% and the Groups effective tax rate is as follows:-  YEAR ENDED MARCH 31,20072006US$000US$000Income before income tax14,33312,369Income tax on pretax income at statutory rate4,8734,205Effect of different tax rates of subsidiary
operating in other jurisdictions(2,219)(879)Tax effect of non-deductible expenses665160Tax effect of non-taxable income(40)(49)Valuation allowance12064Tax effect of exemption(1,698)(1,755)Income tax1,7011,746  As of March 31, 2007, T-Bay had accumulated net operating loss carryforwards for United States federal tax purposes of approximately of $5,223,000, that are available to offset future taxable income.  Realization of the net operating loss carryforwards is dependent upon future profitable operations.  In addition, the carryforwards may be limited upon a change of control in accordance with Internal Revenue Code Section 382, as amended.  Accordingly, management has recorded a valuation allowance to reduce deferred tax assets associated with the net operating loss carryforwards to zero at March 31, 2007.The net operating loss carryforwards expires in years 2012 through 2025.  As of March 31, 2007, deferred tax assets consist of:-  MARCH 31, 2007US$000Net operating loss carryforwards1,778Less: valuation allowance(1,778)Net-   8. Concentrations and Credit Risk  The Group operates principally in the PRC (including Hong Kong) and grants credit to its customers in this geographic region.  Although the PRC is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Groups operations.  Financial instruments that potentially subject the Group to a concentration of credit risk consist of cash, accounts and notes receivable.  At March 31, 2007, the Group had credit risk exposure of uninsured cash in banks of approximately $67,000.  A substantial portion of revenue was generated from one group of customers for the year ended March 31, 2007 and 2006.     F-14   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   8. Concentrations and Credit Risk (continued)  The net sales to customers representing at least 10% of net total sales are as follows:  YEAR ENDED MARCH 31,20072006US$000%US$000%Customer A7,5422110-Customer B3,3851022-Customer C*3,382102,3589Customer D*--3,09412Customer E*13-2,1759Customer group A*8,8232517,19467  At March 31, 2007, this group of customers accounted for 41% of net accounts receivable.  The accounts receivable have repayment terms of not more than twelve months.  The Group does not require collateral to support financial instruments that are subject to credit risk.  The following customers had balances greater than 10% of the total accounts receivable as of March 31, 2007:  MARCH 31, 2007US$000%Customer C*3,26217Customer F3,84020Customer G3,35917Customer H*2,47013Customer I*2,18811Customer group A*7,95241  * Customer C, D, E, H and I are in Customer group A   9. Retirement and Welfare Benefits  The full-time employees of the PRC subsidiaries are entitled to staff welfare benefits including medical care, casualty, housing benefits, education benefits, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan.  The PRC subsidiaries are required to accrue the employer-portion for these benefits based on certain percentages of the employees salaries. The total provision for such employee benefits was $297,000 and $319,000 for the two years ended March 31, 2007 and 2006, respectively.  The PRC subsidiaries are required to make contributions to the plans out of the amounts accrued for all staff welfare benefits except for education benefits.  The PRC government is responsible for the staff welfare benefits including medical care, casualty, housing benefits, unemployment insurance and pension benefits to be paid to these employees.   10. Related Party Transactions  The Group engages in business transactions with the following related parties: a. Li Xiaofeng, a stockholder of T-Bay. b. Li Meilian, a stockholder of T-Bay. c. LEA Management Group LLC (LEAM), a former stockholder of T-Bay  F-15   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   10. Related Party Transactions (continued)  The Group has the following transactions and balances with related parties:-  MARCH 31, 2007US$000Other receivables  Li Xiaofeng17Other payable  Li Meilian199Long-term liabilitiesOther payable  Li Meilian3,194Other payable  Li Xiaofeng7733,967  The balances have no stated terms for repayment and are not interest bearing.  The payables to Li Meilian and Li Xiaofeng are not repayable within the next twelve months.  During the year ended March 31, 2007 and 2006, the Group paid $60,000 and $58,000 service fees to LEAM in respect of communications and consultancy services which were charged to operations.   11. Acquisition of subsidiary  On March 19, 2007, Sunplus and Zhangzhou JiaXun acquired 80% and 20%, respectively, of Fujian Qiaoxing from a third party.  The acquisition is to allow the Group to manufacture in their own facilities.  This transaction was accounted for using the purchase method of accounting.  As of March 31, 2007, Fujian Qiaoxing has not yet commenced operations; therefore, no income or loss of Fujian Qiaoxing is included in the 2007 consolidated statement of operations.  As of the acquisition date, the Group recorded the fair market value of Fujian Qiaoxings assets and liabilities.  Fair market value is defined as the amount at which an asset could be bought or sold in a current transaction between willing parties.  The value of Fujian Qiaoxings land use rights was determined by reference to the open market value.  To the extent that the purchase price exceeded the fair value of the assets and liabilities assumed, goodwill was recorded.  The resuting land use rights acquired in connection with the acquisition will be amortized over 47 years.  The allocation of the purchase price to assets acquired and liabilities assumed was as follows:-  Acquisition of subsidiaryUS$000Net assets acquired:-Property, plant and equipment24Construction in progress1,910Land use rights *9,488Cash and bank balances33Other receivables1,645Other payables(3,986)Net assets acquired9,114Goodwill on consolidation4,873Consideration13,987    F-16   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   11. Acquisition of subsidiary (continued)  US$000Satisfied by:Cash12,598Other payable1,389Total consideration13,987  An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of Fujian Qiaoxing is as follows:-  US$000Cash and bank balances acquired33Less: cash consideration paid(12,598)Net cash outflow(12,565)  Proforma information is not presented as it is not significant.   12. Commitments and Contingencies  a. As of March 31, 2007, Sunplus leased office premises under an agreement expiring in 2008.  Rental expenses for the two years ended March 31, 2007 and 2006 amounted to $315,000 and $265,000, respectively, and are included in general and administrative expenses in the consolidated statements of operations.   The future minimum lease payments under the above-mentioned lease as of March 31, 2007 are as follows:-  US$000Year Ending March 31,2008196  b. Sunplus entered into a technology service contract with a customer for a period of three years starting from February 2003.  Under this agreement, Sunplus paid customer service fees of $38,000 in the year ended March 31, 2006, which were charged to operations.  The agreement was early terminated in February 2006.  c. As of March 31, 2007, the Group had capital commitments in relation to investment in Fujian Qiaoxing of $1,389,000 and property, plant and equipment in the amount of $478,000.  d.  In August 2006, Sunplus Technology Co., Ltd., a company incorporated in the Republic of China filed a suit against Sunplus.  The plaintiff brought suit demanding that Sunplus cease using the Sunplus name and the company website.  In April 2007, the court granted the demand and Sunplus has now appealed the ruling in Shanghai Superior Peoples Court.  Sunplus intends to vigorously defend its use of name Sunplus and its website and believes that Sunplus will not suffer any substantial pecuniary damages.     F-17   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   13. New Accounting Pronouncements  On September 29, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS No. 158 requires an employer that sponsors one or more defined benefit pension plans or other postretirement plans to 1) recognize the funded status of a plan, measured as the difference between plan assets at fair value and the benefit obligation, in the balance sheet; 2) recognize in shareholders equity as a component of accumulated other comprehensive loss, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not yet recognized as components of net periodic benefit cost; 3) measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end balance sheet; and 4) disclose in the notes to the financial statements additional information about the effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.  The Group does not have any defined benefit pension or other postretirement plans.  The FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS No. 155) in February 2006. SFAS No. 155 amends SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and addresses the application of SFAS No. 133 to beneficial interests in securitized financial assets. SFAS No. 155 establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. Additionally, SFAS No. 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 is effective for fiscal years beginning after September 15, 2006.  The Group does not have any hybrid financial instruments.  The FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140 (SFAS No. 156) in March 2006. SFAS No. 156 requires a company to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset. A company would recognize a servicing asset or servicing liability initially at fair value. A company will then be permitted to choose to subsequently recognize servicing assets and liabilities using the amortization method or fair value measurement method. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006.  The adoption of SFAS No. 156 will not have any material impact on the Groups financial statements.  On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies what criteria must be met prior to recognition of the financial statement benefit of a position taken in an income tax return. FIN No. 48 will require companies to include additional qualitative and quantitative disclosures within their financial statements. The disclosures will include potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each period. The disclosures will also include a discussion of the nature of uncertainties, factors which could cause a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48 will also require a company to recognize a financial statement benefit for a position taken for tax return purposes when it will be more-likely-than-not that the position will be sustained. FIN No. 48 will be effective for fiscal years beginning after December 15, 2006. The Group is currently assessing the impact FIN No. 48 will have on the financial statements but does not anticipate it will be material.         F-18   T-BAY HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) MARCH 31, 2007   13. New Accounting Pronouncements (continued)  On September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 addresses the way companies should measure fair value when they are required to use a fair value measure for recognition and disclosure purposes under generally accepted accounting principles. SFAS No. 157 will require the fair value of an asset or liability to be based on a market based measure which will reflect the credit risk of the company. SFAS No. 157 will also require expanded disclosure requirements which will include the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. SFAS No. 157 will be applied prospectively and will be effective for fiscal years beginning after November 15, 2007 and to interim periods within those fiscal years. The Group is currently assessing the impact SFAS No. 157 will have on the financial statements.  In September 2006, the U.S. SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.  The Group adopted the provisions of SAB 108 effective March 31, 2007. The adoption of SAB 108 did not have an impact on the consolidated financial statements.  Emerging Issues Task Force (EITF) 06-03 How Taxes Collected from Customers are Remitted to Governmental Authorities Should be Presented on the Income Statement (That Is, Gross versus Net Presentation) issued by the EITF of the FASB is effective for the Company on April 1, 2007.  The Task Force concluded that presentation of sales and value-added taxes is an accounting policy decision that should be disclosed pursuant to APB Opinion 22.  Such presentation may be on a gross bassis (included in revenues and costs) or a net basis (excluded from revenues).  The Group will adopt EITF 06-03 on April 1, 2007.  The adoption is not expected to have a material impact in the consolidated financial statements.     F-19   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise)  FINANCIAL STATEMENTS MARCH 31, 2007 Together With Report Of Independent Registered Public Accounting Firm    F-20   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) INDEX TO FINANCIAL STATEMENTS   Report of Independent Registered Public Accounting Firm F-22  Balance Sheet F-23  Statements of Operations F-24  Statement of Changes in Owners Equity F-25  Statements of Cash Flows F-26  Notes to Financial Statements F-27   F-21           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   The Board of Directors and Owners of Fujian Qiaoxing Industry Co., Ltd. (A Development Stage Enterprise)   We have audited the accompanying balance sheet of Fujian Qiaoxing Industry Co., Ltd. (the Company) (A Development Stage Enterprise) as of March 31, 2007, and the related statements of operations, changes in owners equity and cash flows for the year ended March 31, 2007 and the period from February 13, 2004 (date of establishment) to March 31, 2007.  These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the companys internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2007 and the results of its operations and cash flows for the year ended March 31, 2007 and the period from February 13, 2004 (date of establishment) to March 31, 2007 in conformity with accounting principles generally accepted in the United States of America.  /s/ Moore StephensMoore Stephens Certified Public Accountants Hong Kong  June 29, 2007  F-22   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) BALANCE SHEET March 31, 2007 (In thousand of United States dollars) Note(s)MARCH 31, 2007ASSETSCURRENT ASSETSCash and cash equivalents$33Prepayments, deposits and other receivables, net2,192Total current assets2,225PROPERTY, PLANT AND EQUIPMENT, NET324CONSTRUCTION IN PROGRESS2(e)740LAND USE RIGHTS2(f)1,295TOTAL ASSETS$4,284LIABILITIES AND OWNERS EQUITYCURRENT LIABILITIESAccruals and other payablesRelated parties5$66Third parties1,854Total current liabilities1,920COMMITMENTS AND CONTINGENCIES6OWNERS EQUITYPaid-up registered capital2,590Deficit accumulated during the development stage(220)Accumulated other comprehensive income(6)Total owners equity2,364TOTAL LIABILITIES AND OWNERS EQUITY$4,284  The accompanying notes are an integral part of these financial statements.  F-23   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) STATEMENT OF OPERATIONS For the period from February 13, 2004 (date of establishment) to March 31, 2007 (In thousand of United States dollars, except per share data)  Note(s)Year ended March 31, 2007For the period from February 13, 2004 (date of establishment) to March 31, 2007
cumulativeNET REVENUE$-$-COST OF REVENUE--GROSS PROFIT--OPERATING EXPENSESGeneral and administrative expenses220220LOSS BEFORE INCOME TAX(220)(220)INCOME TAX: CURRENT2(h)--NET LOSS2(o)(220)(220)OTHER COMPREHENSIVE LOSSForeign currency translation adjustment(6)(6)COMPREHENSIVE LOSS$(226)$(226)  The accompanying notes are an integral part of these financial statements.    F-24   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) STATEMENT OF CHANGES IN OWNERS EQUITY For the period from February 13, 2004 (date of establishment) to March 31, 2007 (In thousand of United States dollars)  PAID-UP REGISTERED CAPITALACCUMULATED DEFICITACCUMULATED OTHER COMPREHENSIVE INCOMETOTAL
OWNERS EQUITYRMB000US$Capital contributionin February 20043,000$     388$       -$       -$    388In March 20041,000130--130in April 20044,000518--518In July 200512,0001,554--1,554Net loss--(220)-(220)Foreign currency
translation adjustment---(6)(6)Balance, March 31, 200720,000$   2,590$   (220)$     (6)$   2,364  The accompanying notes are an integral part of these financial statements.  F-25   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) STATEMENTS OF CASH FLOWS For the period from February 13, 2004 (date of establishment) to March 31, 2007 (In thousand of United States dollars)  Year ended March 31, 2007For the period from February 13, 2004 (date of establishment) to March 31, 2007
cumulativeCASH FLOWS FROM OPERATING ACTIVITIESNet income$(220)$(220)Adjustments to reconcile net income to net cash
generated from operating activities:Depreciation38Changes in operating assets and liabilities:Increase in prepayments, deposits and other receivables(503)(2,192)Increase in accruals and other payables1,1911,920Net cash generated from/(used in) operating activities471(484)CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment-(32)Acquisition of construction-in-progress(471)(740)Acquisition of land use rights-(1,295)Net cash used in investing activities(471)(2,067)CASH FLOWS FROM FINANCING ACTIVITIESCapital contributions by owners-2,590Net cash generated from financing activities-2,590Effect of exchange rate changes on cash(5)(6)Net increase/(decrease) in cash and cash equivalents(5)33Cash and cash equivalents at beginning of year/period38-Cash and cash equivalents at end of year/period$33$33SUPPLEMENTAL INFORMATIONIncome taxes paid$-$-Interest paid$-$-  The accompanying notes are an integral part of these financial statements.    F-26   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS MARCH 31, 2007   1. The Company  Fujian Qiaoxing Industry Co., Ltd. (the Company) was established in the Peoples Republic of China (PRC) on February 13, 2004 by Huizhou Qiaoxing Development Co. Ltd. and Huizhou Qiaoxing Trading Co. Ltd.  Its registered capital is RMB20,000,000 (US$2,590,000).  On March 19, 2007, Shanghai Sunplus Communication Technology Co., Ltd. and Zhangzhou JiaXun Communication Facility Co., Ltd. (Zhangzhou JiaXun) acquired 80% and 20%, respectively, of the Company.  The Company is considered a development stage enterprise and is in the process of construction of factories for production of mobile phones.  As of March 31, 2007, it has not commenced operations.   2. Summary of Significant Accounting Policies  (a) Basis of Preparation  The Company has not earned any revenue.  Accordingly, the Companys activities have been accounted for as those of a Development Stage Enterprise as set forth in Financial Accounting Standards Board Statement No. 7 (SFAS 7).  Among the disclosures required by SFAS 7 are the Companys financial statements be identified as those of a development stage company, and that the statement of earnings, retained earnings and owners equity and cash flows disclose activity since the date of the Companys establishment.  The accompanying financial statements are prepared in accordance with the accounting principles generally accepted in the United States of America (US GAAP).  (b) Use of Estimates  In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Significant estimates include depreciation.  Actual results could differ from those estimates.  (c) Cash and Cash Equivalents  The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of March 31, 2007, the Company did not have any cash equivalents.  (d) Property, Plant and Equipment  Property, plant and equipment is stated at cost. Depreciation is provided principally by use of the straight-line method over the estimated useful lives of the related assets.  Expenditure for maintenance and repairs, which does not improve or extend the expected useful life of the assets, is expensed to operations while major repairs are capitalized.  Management estimates that property, plant and equipment have a 10% residual value.  The estimated useful lives are as follows:  Office equipment 5 years Motor vehicles 5 years  The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets, and, if any, is recognized in the statement of operations and comprehensive income.  F-27   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (Continued) MARCH 31, 2007   (e) Construction in progress  Construction in progress represents factory buildings under construction and machinery under installation and is stated at cost and not depreciated.  Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.  (f) Land use rights  Land-use rights are stated at cost, less amortization. Amortization of land-use rights is calculated on the straight-line method, based on the period over which the right is granted by the relevant authorities in Fujian Province, PRC.  (g) Impairment of Assets  In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", the Company evaluates its long-lived assets to determine whether later events and circumstances warrant revised estimates of useful lives or a reduction in carrying value due to impairment. If indicators of impairment exist and if the value of the assets is impaired, an impairment loss would be recognized.  As of March 31, 2007, no impairment loss has been recognized.  (h) Income Taxes  The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes".  Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  The Company reviews the differences between the tax bases under PRC tax laws and financial reporting under US GAAP.  As of March 31, 2007, no material differences were found; therefore, there were no material deferred tax assets or liabilities arising from the operations of the Company in the PRC.  Under current PRC tax laws, no tax is imposed in respect to distributions paid to owners except individual income tax.  (i) Foreign Currency Transactions  The functional currencies of the Company is Renminbi, and its reporting currency is U.S. dollars.The Companys balance sheet accounts are translated into U.S. dollars at the year-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during the periods in which these items arise.  Translation gains and losses are deferred and accumulated as a component of other comprehensive income in owners equity.  Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.  The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.  F-28   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (Continued) MARCH 31, 2007    (j) Fair Value of Financial Instruments  SFAS No. 107, Disclosures about Fair Values of Financial Instruments, requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance sheet.  The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.  For certain financial instruments, including cash, other receivables, accruals and other payables, it was assumed that the carrying amounts approximate fair value because of the near term maturities of such obligations.  (o) Earnings per Share  For the period ended March 31, 2007, earnings per share is not shown as there are no shares outstanding.   3. Property, Plant and Equipment, Net  MARCH 31, 2007US$000CostOffice equipment3Motor vehicles2932Accumulated depreciationOffice equipment1Motor vehicles78Carrying valueOffice equipment2Motor vehicles2224  Depreciation expense for period ended March 31, 2007 was approximately $8,000.   4. Concentrations and Credit Risk  Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and other receivable.  The Company does not require collateral to support financial instruments that are subject to credit risk.  At March 31, 2007, the Company had credit risk exposure of uninsured cash in banks of approximately $33,000.     F-29   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (Continued) MARCH 31, 2007   5. Related Party Transactions  The Company has the following balance with related parties:-  MARCH 31, 2007US$000Other payable to a shareholder Zhangzhou JiaXun66   6. Commitments and Contingencies  As of March 31, 2007, the Company did not have any capital commitments.   7. New Accounting Pronouncements  On September 29, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS No. 158 requires an employer that sponsors one or more defined benefit pension plans or other postretirement plans to 1) recognize the funded status of a plan, measured as the difference between plan assets at fair value and the benefit obligation, in the balance sheet; 2) recognize in shareholders equity as a component of accumulated other comprehensive loss, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not yet recognized as components of net periodic benefit cost; 3) measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end balance sheet; and 4) disclose in the notes to the financial statements additional information about the effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.  The Company does not have any defined benefit pension or other postretirement plans.  The FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS No. 155) in February 2006. SFAS No. 155 amends SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and addresses the application of SFAS No. 133 to beneficial interests in securitized financial assets. SFAS No. 155 establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. Additionally, SFAS No. 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 is effective for fiscal years beginning after September 15, 2006.  The Company does not have any hybrid financial instruments.  The FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140 (SFAS No. 156) in March 2006. SFAS No. 156 requires a company to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset. A company would recognize a servicing asset or servicing liability initially at fair value. A company will then be permitted to choose to subsequently recognize servicing assets and liabilities using the amortization method or fair value measurement method. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006.  The adoption of SFAS No. 156 will not have any material impact on the Companys financial statements.  F-30   FUJIAN QIAOXING INDUSTRY CO., LTD. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS (Continued) MARCH 31, 2007   7. New Accounting Pronouncements (continued)  On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies what criteria must be met prior to recognition of the financial statement benefit of a position taken in an income tax return. FIN No. 48 will require companies to include additional qualitative and quantitative disclosures within their financial statements. The disclosures will include potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each period. The disclosures will also include a discussion of the nature of uncertainties, factors which could cause a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48 will also require a company to recognize a financial statement benefit for a position taken for tax return purposes when it will be more-likely-than-not that the position will be sustained. FIN No. 48 will be effective for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact FIN No. 48 will have on the financial statements but does not anticipate it will be material.  On September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 addresses the way companies should measure fair value when they are required to use a fair value measure for recognition and disclosure purposes under generally accepted accounting principles. SFAS No. 157 will require the fair value of an asset or liability to be based on a market based measure which will reflect the credit risk of the company. SFAS No. 157 will also require expanded disclosure requirements which will include the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. SFAS No. 157 will be applied prospectively and will be effective for fiscal years beginning after November 15, 2007 and to interim periods within those fiscal years. The Company is currently assessing the impact SFAS No. 157 will have on the financial statements.  In September 2006, the U.S. SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.  The Company adopted the provisions of SAB 108 effective March 31, 2007. The adoption of SAB 108 did not have an impact on the financial statements.  Emerging Issues Task Force (EITF) 06-03 How Taxes Collected from Customers are Remitted to Governmental Authorities Should be Presented on the Income Statement (That Is, Gross versus Net Presentation) issued by the EITF of the FASB is effective for the Company on April 1, 2007.  The Task Force concluded that presentation of sales and value-added taxes is an accounting policy decision that should be disclosed pursuant to APB Opinion 22.  Such presentation may be on a gross bassis (included in revenues and costs) or a net basis (excluded from revenues).  The Company will adopt EITF 06-03 on April 1, 2007.  The adoption is not expected to have a material impact in the financial statements.      F-31